Saturday, September 02, 2006

US ROK FTA - Time to Clean Up KDB

This was already commented on a bit somewhere, however I want to include my thoughts.

The Korean trade delegation announced yet another trade protection they want to leave in place. Namely:

A South Korean negotiator said yesterday, "The United States will likely take issue with the government’s giving assistance to public entities based on the ’national treatment’ provision. Under this provision, neither country is allowed to discriminate against products and services of the other country. At the previous two rounds of talks, the two nations merely confirmed the existence of the issue, and they will begin discussing it seriously beginning at the upcoming third round of negotiations," added the official.

The U.S. side’s agreement proposal clarifies that public entities competing with private entities are to be included in the negotiation. A Korean delegate remarked, "If this provision is included in the agreement, foreign financial institutions can file a lawsuit over government assistance to those banks." For example, if the government-run Korea Development Bank (KDB) raised money under favorable conditions and then lent the money to a domestic company at a lower interest rate than other banks, CitiBank would be able to sue KDB for unfair competitive practices.

I am going to refrain the more obvious pithy comments. However there is good reason for this. The inclusion on this matter into the trade talks is likely due to the Hynix subsidy matter. The dispute was basically the Korean government was using government owned banks to subsidies Hynix Semiconductor. Micron Technologies asked, and got, anti-dumping tariffs from the US government. Korea took the matter to the WTO “court” and eventually lost the case.

As a service to the woeful Korean sales technique on the FTA I want to show what the FTA may help. One of the main arguments for an FTA is that increased compeition has an the effect of making the marketplace better (unless of course you want to take a Marxist view of things, even then you are on shaky ground, however lets set that aside). Meanwhile Korea holds up as an example of a “socialy responsible” bank the Korean Development Bank (KDB).

So lets take a brief look at the recent press archives about KDB. If you ask me competition is needed here either to right a leaky ship, or root out the corruption and inefficacy here.

Support of fraud and cronyism:

Local banks hold an important key to the fate of SK Corp. as they will effectively have a casting vote with their 14 percent stake in the nation's largest oil refinery at the shareholder meeting on March 12….
Shares owned by nine local banks, including Kookmin and Hana, totaled 14.31 million, 11.36 percent. Hana, Shinhan and Korea Development Bank (KDB) are known to be friendly partners for SK Corp. [Thus defending against an effort by shareholders to unseat chairman Chey Tae-won who was recently convicted of fraud in his role as chairman of SK Corp.]
– Korea Times, March 21, 2004

Polarization in salaries runs deep among employees in government-affiliated financial and other organizations with the highest earner making more than twice the lowest.

On the top of the salary ladder are the employees of the state-funded Korea Development Bank (KDB). Its governor Kim Chang-lok has already been under fire for getting 711 million won, or more than $700,000 per year, the highest paid position in state-funded public services institutions. The bank explained that 45 percent of the figure covered allowances to pay for public activities which technically should be excluded from his salary.

The average annual salary of 2,079 KDB employees, excluding executives, was 85.4 million won ($90,000) last year, up 8 percent from 79.1 million won in 2004, it said.
– Korea Times, July 24, 2006

Management incompetence and poor lending

The Board of Audit and Inspection (BAI) announced on Tuesday that it has begun probing domestic lenders as some were found to have conducted irregular lending to credit defaulters as well as risky companies.
The BAI’s move came after the nation’s inspection agency found that local lenders of some bank and non-bank financial firms extended new loans to credit defaulters and invented corporate credit ratings.
“In our preliminary inspection, we found that some local lenders, including the Industrial Bank of Korea (IBK) and the Korea Development Bank (KDB), offered 3.49 billion won in new loans to 136 credit defaulters over the past two years,’’ a BAI official said.
– Korea Times, May 4, 2004

State-run Korea Development Bank (KDB) on Wednesday announced plans to provide 3 trillion won to small and medium-sized enterprises (SMEs).

In addition, it will set aside 1.8 trillion won for existing corporate borrowers to extend maturing loans.

KDB said it would make more loans available for SMEs in order to offset reduction of credit by commercial banks.
As of August, the overdue debt ratio of SMEs came to 2.92 percent, up from 2.1 percent at the end of 2003. (Great, few people pay them back so they give them more money – DM)
– Korea Times, November, 3, 2004

In its latest report on the economic value of the service industry, the KDB said domestic banks should increase loans to non-manufacturing firms, stressing that the sector could be a savior of the sagging economy… The KDB also commented on the service industry’s weakness compared with other countries. (So they are urging more investment in a sector they think is weak? – DM)
– Korea Times, May 29, 2005

The Korea Development Bank (KDB) is suffering from poor credit screening and management with 20 percent of its total loans extended to insolvent firms.
During the parliamentary audit of the state-run bank on Friday, lawmakers expressed concern over the asset soundness of the bank involving loans to insolvent firms and losses in foreign currency trading.
“The outstanding loans from the KDB to financially-troubled companies reached 17.6 trillion won in June,’’ said Rep. Lee Kye-ahn of the ruling Uri Party.
The amount accounts for about 20 percent of the state-run policy bank’s total loans amounting to 91.2 trillion won.
Lee also said that more than 800 companies of the total corporate customers are even failing to pay their debts. “The loans to the insolvent firms increased by 5 trillion won over the past three years.’’
– Korea Times, October 7, 2005

Crooks at the Helm

The government has decided to grant presidential pardons to 352 people, on the occasion of Buddha’s Birthday Wednesday, including six people convicted of playing roles in an illegal money transfer to North Korea in 2000, officials said on Tuesday…former head of the Korea Development Bank (KDB) Lee Keun-young [and] former KDB vice president Park Sang-bae were convicted of [there complicity in] illegally sending $500 million to Pyongyang ahead of the summit between former President Kim Dae-jung and North Korean leader Kim Jong-il in June 2000.
– Korea Times, May 25, 2004

One executive and eight general managers of the state-run Korea Development Bank (KDB) were relieved of their duties for unauthorized involvement in stocks and futures contracts.

The disciplinary action was taken as an assistant KDB manager mobilized 5.8 billion won from his seniors, colleagues and family members to establish a private fund aimed at investing in equities and futures contracts. The end result was the complete loss of the investment pool, although the unauthorized fund manager initially provided 20-30 percent return on investments.
– Korea Times, July, 20, 2004

The prosecution is planning questioning of Hyundai Automotive Group chairman Chung Mong-koo this week over how he spent tens of billions of won in slush funds, and who he lobbied with the money, prosecutors said on Sunday.
Chung was arrested Friday night on charges of embezzlement and breach of trust. The Seoul Central District Court, after hours spent questioning the 68-year-old tycoon, issued the warrant requested by the prosecution on Thursday…
He allegedly took the money in exchange for lobbying officials at the state-run Korea Development Bank (KDB) and the state-run Korea Asset Management Corp. (KAMCO) on behalf of the automaker.

According to prosecution, he allegedly gave Park Sang-bae, former KDB deputy governor, 1 billion won and Rhee Sung-kun, former KDB director, 100 million won in 2001 and 2002 to have Hyundai Automotive affiliates’ bad debts written off.
Park allegedly instructed Rhee to forgive 55 billion won in bad debts of machinery company Wia and parts-maker Aju Metal by using public funds in collaboration with KAMCO.
– Korea Times, March 20, 2006

Promotion of economic isolationalism:

The chief of the nation’s top state-run bank on Wednesday expressed concern over the excess foreign capital holding more than 60 percent of stakes in Korean commercial banks.

At a press conference in Seoul, Yoo Ji-chang, governor of the Korea Development Bank (KDB) said he is not sure if the foreign funds, such as Lone Star and Newbridge Capital, will give positive effects on the nation’s financial market development.
- Korea Times, March 12, 2004

Presidents of two major state-owned policy banks said they are opposed to foreign capital taking over LG Card.
Yoo Ji-chang, governor of Korea Development Bank (KDB), and Kang Kwon-seok, president of the Industrial Bank of Korea (IBK), said that they want the leading card issuer to be sold to domestic investors through competitive bidding.
– Korea Times, March 9, 2005


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