Uncertain year ahead for Korean banks amid looming debt crisis, CEO term-ends

FSC Chairman Kim Joo-hyun (center) poses for a photo with the chiefs of the nation`s top five banking groups in central Seoul on Nov. 1. (Yonhap)

Chiefs of South Korea’s top banks are fast approaching the end of their current terms amid concerns of a looming debt crisis in the financial sector, sources said Wednesday.

Starting 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 inching towards the end of their current terms in March next year.

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 to step down from their current terms by March next year.

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

In the past two years, the top banks have posted record net profits and performances, buoyed by a record-low Bank of Korea interest rate cut in 2020, followed later by an aggressive rate hike. However, the chairmen now face fresh challenges that may turn out to be game changers.

As a side effect of their aggressive lending, banks now face a higher chance of bankruptcy due to growing risks of loan delinquency coupled with worries of a nationwide credit crunch.

Commercial banks’ credit default swap premiums -- a gauge of their credit and bankruptcy risks -- have surged to the highest level in five years. The average CDS premium of the nation’s top four banking giants – KB, Shinhan, Hana and Woori – hit 75 basis points as of Nov. 4, recent data from the Korea Center for International Finance showed. Banks are facing bigger bankruptcy risks as the figure grows bigger.

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

Regardless of the bankruptcy concerns, the nation’s top five banks including NH NongHyup pledged on Nov. 1 to pump 95 trillion won ($69 billion) into the nation’s financial market by the end of the year to prevent a massive credit crunch.

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

On top of financial risks, the Yoon Suk-yeol administration’s hard-line policies against financial crimes are likely to work as major hurdles for the incumbent chiefs as well.

The regulator Financial Services Commission is currently gearing up to announce the level of sanction it will impose on Woori chief Son, holding him accountable for the mis-selling of funds under the now-defunct Lime Asset Management. The mis-selling has caused investors to lose a hefty sum of money since 2019, which led to the watchdog Financial Supervisory Service in April last year to impose the third-highest punishment of its five-tier system on Son. If the FSC confirms the FSS’ decision, it will be difficult for the Woori chief to serve another term, as the punishment bans working at a financial firm for up to five years.

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

“Despite a difficult market situation, the FSC believes we need to carry out what needs to be done, and we plan to carry out the decisions one by one by the end of the year,” Kim said when asked about Son’s sanctions.

(mkjung@heraldcorp.com)

By Jung Min-kyung(mkjung@heraldcorp.com)