Uncertain year for Korean banks amid looming debt crisis, CEO terms end

FSC Chairman Kim Joo-hyun (center) poses for a photo with the heads of the country’s five major banking groups in central Seoul on November 1. (Yonhap)

The heads of South Korea’s major banks are fast approaching the end of their current terms amid fears of a looming debt crisis in the financial sector, sources said on Wednesday.

Beginning with NH Financial Group Chairman Son Byung-hwan’s term ending next month, Shinhan Financial Group Chairman Cho Yong-byoung and Woori Financial Group Chairman Son Tae-seung are approaching from the end of their current term in March next year.

The CEOs of some banking giants’ flagship commercial lenders are in the same boat, with Shinhan Bank CEO Jin Ok-dong, NH NongHyup Bank CEO Kwon Joon-hak and Hana Bank CEO Park Sung-ho, who will step down from their current positions by next March. year.

Industry watchers expect the current heads of banking groups to be appointed for at least another one- or two-year term, as it has become the norm for them to serve for a decade. Both Cho and Woori’s Son were appointed in 2017, while NH’s Son was promoted to chairman last year.

Over the past two years, major banks have posted record net profits and performance, supported by a record Bank of Korea interest rate cut in 2020, later followed by an aggressive rate hike. However, presidents now face new challenges that could be a game-changer.

As a side effect of their aggressive lending, banks now face a heightened risk of bankruptcy due to rising default risks coupled with fears of a nationwide credit crunch.

Commercial banks’ default swap premiums – an indicator of their credit and bankruptcy risks – have risen to their highest level in five years. The average CDS spread of the country’s four major banking giants – KB, Shinhan, Hana and Woori – reached 75 basis points as of November 4, according to recent data from the Korea Center for International Finance. Banks face greater risks of failure as the number rises.

The figure has more than tripled since the end of last year, when it stood at 22 basis points.

Regardless of bankruptcy concerns, the country’s five major banks, including NH NongHyup, pledged on November 1 to inject 95 trillion won ($69 billion) into the domestic financial market by the end of the year. to avoid a massive credit crunch.

“It seems inevitable that Korean banks will participate in such a public project to suppress the financial system, but with banks simultaneously carrying out COVID-19 relief projects, the decision to inject liquidity is likely to increase the risks of credit for banks,” Choi Jung-wook, an analyst at Hana Securities, said Monday.

In addition to financial risks, the Yoon Suk-yeol administration’s intransigent policies against financial crimes are likely to pose major obstacles for incumbents as well.

The Financial Services Regulatory Commission is currently preparing to announce the level of sanction it will impose on chief Woori Son, holding him responsible for the mis-selling of funds under defunct Lime Asset Management. The mis-selling has cost investors a large sum of money since 2019, leading the financial watchdog in April last year to impose Son the third-highest penalty in its five-tier system. If the FSC upholds the FSS decision, it will be difficult for Chief Woori to serve another term, as the sentence prohibits working in a financial firm for up to five years.

FSC Chairman Kim Joo-hyun told reporters on Wednesday that confirmation would come by the end of the year.

“Despite a tough market situation, FSC believes we have to do what needs to be done, and we expect to implement the decisions one by one by the end of the year,” Kim said when he was asked about Son’s sanctions.

By Jung Min-kyung ([email protected])

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