The Korean banking landscape would likely change once Woori Bank leaves the government and becomes a formidable player to bigger rivals Kookim Bank and KEB Hana Bank that still lack single owners.

Last week, state-run Korea Deposit Insurance Corporation (KDIC) received letters of intent from 18 potential buyers including Korea Investment Holdings Co., Hanwha Life Insurance Co. and China’s Anbang Insurance Group for its 30 percent stake in the country’s fourth largest bank that has been offered in splinters of from 4 percent to 8 percent to reduce risk and investment burden.

Korea Investment Holdings is dubbed as the most eager and promising candidate to own the biggest share of 8 percent in Woori Bank. Each of the winning bidders would have the right to name an outside director on the board and a say in management affairs. It would also increase its chance to become the majority single largest shareholder if it bids for the remaining government stake.

“Shinhan Bank has led the market in terms of profitability and asset quality thanks to its relatively strong ownership control from second-generation Japanese Koreans. If Woori Bank is completely privatized with major shareholders, it could outperform KB Bank and Hana Bank and even Shinhan Bank,” said a high-ranking government official.

Korean commercial banks that have been seeking breakthroughs to overcome a low-profit business model are paying attention to a new governance structure led by major shareholders that can allow bold decision making and responsible management free from state meddling.

KB Bank and Hana Bank are the country’s two largest banks in asset size with 332.60 trillion won and 327.57 trillion won, respectively, but they are behind Shinhan whose asset size is 317.98 trillion won in profits such as profit per employee before loan loss provisions, return on assets (ROA) and return on equity (ROE). In terms of asset quality measured by the substandard and below loan ratio, Hana Bank (1.17 percent) and KB Bank (0.95 percent) are higher compared with Shinhan Bank (0.82 percent). The privatization of Woori Bank with major shareholders would further threaten the current big twos that lack a strong governance body.

But the question is when Woori Bank can be fully privatized and how strong it will be. The government wants to sell a 30 percent stake owned by Korea Deposit Insurance Corporation within this year and the remaining 18.09 percent a year after.

But market experts project that an auction of the second batch may be delayed because of the presidential election planned for late next year. With the ongoing government-led restructuring of the country’s backbone industries, experts expect the government would have to leverage Woori Bank to make up for policy loans in support of other state-owned banks -- KDB, Eximbank and IBK hit by large economy-sensitive borrowers in shipbuilding and shipping industries.

The government became the largest shareholder of Woori Bank by controlling 51 percent stake through the state-run Korea Deposit Insurance Corp. in the wake of the 1998 Asian financial crisis. It has tried to dispose its stakes in Woori Bank, but its previous four attempts to sell them have failed.

By Chung Seok-woo

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