Can't Restructure Everyone
At the end of 2013, the Korea Development Bank (KDB) began to restructure the slumping Dongbu Group. At that time, many pundits expected a fast recovery. They analyzed that Dongbu Steel could improve its financial conditions by selling off many valuable assets such as its Incheon factory. But things went wrong with the KDB's attempt to sell off both Dongbu Steel’s Incheon factory and Dongbu Power Generation Dangjin to POSCO as a package.
But the KDB failed to reach a deal with POSCO, and lost the golden moment selling off the assets, deteriorating Dongbu’s financial trouble. At the moment, even though Dongbu’s major affiliates were sold off or are waiting to be, Dongbu’s financial woes are still lingering. Financial specialists give failing marks to the results of the restructuring of Dongbu, saying that KDB dropped the ball. What'w worse, the continuing economic slump is brining increasingly more and more faltering enterprises to the KDB's door.
That makes the KDB too busy supporting troubled companies to demonstrate enterprise management capabilities that match its status as a leading financial institution for government financial policies. Many point out that the KDB’s corporate restructuring systems are not working properly. Banks’ total amount of credit extended to companies under workout programs stood at 4.8856 trillion won (US$4.1610 billion), according to material that the Financial Supervisory Commission submitted to Rep. Jung Woo-taek on Sept. 15.
Among that credit, the KDB is holding 925.5 billion won (US$788.3 million), or 18.9 percent. This is because the government-run KDB accepted the burden to give additional support to companies that went under, while private banks are withdrawing from corporate restructuring due to a drop in profitability. Including credits on companies under court receivership and voluntary agreements further strains the KDB’s extended credit. On Aug. 20, companies under the KDB’s restructuring program totaled 99 -- 43 companies including Kumho Industrial under its workout program, 43 companies including Keangnam Enterprises, and 13 companies under voluntary agreements.
The KDB had a total of 10.0541 trillion won (US$8.56217 billion). This means that the KDB had 34.6 percent of the 29.0355 trillion won (US$24.7292 billion), which is the financial industry’s total credit to companies. Some experts are becoming more concerned about the burden of corporate restructuring becoming too heavy for the KDB and undermining its soundness.
The KDB’s non-performing credits stood at 3 trillion won (US$2.6 billion) as of the end of June. They accounted for 2.44 percent of all credits. The percentage is higher than 1.5 percent, the average of nationwide commercial banks.
The more corporate restructuring fails, the greater burden the KDB has to accept, Rep. Jung said. “It is time to ponder making a change in the restricting system. Financial regulators need to take stronger action about financial stability,” Jung added.
Financial regulators are seeking to change restructuring systems via the establishment of corporate restructuring companies, under the judgment that it needs changing for the KDB to take nearly full charge of corporate restructuring. “The KDB has played a key role in corporate restructuring such as handling underperforming companies,” a financial expert said. “But this process gives the KDB a huge burden.” It is necessary to transfer some of the roles of the KDB to the private sector, such as corporate restructuring companies.