We attended an FSC-sponsored forum on “visions and policies to upgrade Korean financial sector” to sense the direction of WFH’s privatization. At the forum, the financial think-tanks advised scale upgrade and gradual globalization as growth paths for Korean banks. Based on concentration ratio comparisons (Big three banks as a percentage of the total and largest bank’s total assets as a percentage of GDP), the institute found room for a further scale upgrade. The speaker also pointed out that Korean banks lag far behind Korean manufacturers in terms of global presence, which should be fixed for more balanced growth of Korea Inc. Overall, key takeaways from the forum fall in line with our view that a merger looks the most feasible option for the privatization at Woori Finance Holdings. We believe a tie-up involving WFH (likely scenario of WFH plus HFG) should make a ‘win-win’ case for all interested parties: 1) the government to maximize recovery of public money injected into WFH and upgrade the competitiveness of Korean banks; 2) both banks to fix some structural weaknesses through a merger; and 3) shareholders likely to enjoy better share prices. We note that the government may secure theoretical grounds from the research to go ahead for WFH’s privatization through a merger.
Download Citi Research’s Korea Banks (08 Feb 2010)
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