Five banks forced to shut down

• Closure of five banks first steps toward 'Big Bang'

Five weak Korean banks were ordered to shut down and merge with stronger banks June 29.

The Financial Supervisory Commission (FSC) issued a final order to Daedong Bank, Dong Nam Bank, Donghwa Bank, Kyungki Bank, and Chungchong Bank, to shut down and be absorbed by healthier banks under the so-called P & A (purchase and assumption) formula.

Seven other banks, meanwhile were given conditional approval of their management normalization plans from the FSC in the nations's historic restructuring of banks.

To survive, the seven banks must submit strong management improvement plans - including a drastic reshuffle of management, capital increases or reductions, mergers and manpower cuts, to the financial watchdog committee by the end of July.

Four large commercial banks - CHO Hung, Commercial Bank of Korea, Hanil and Korea Exchange - received conditional approval of their management normalization plans from the FSC.

The decision was slightly tougher than the recommendation made by the Bank Appraisal Committee (BAC).

The committee, responsible for evaluating banks, management, earlier recommend the four banks be approved because their management normalization plan could achieve the eight-percent standard set by the Bank of International Settlements (BIS) in the near future.

But the FSC decided not to grant unqualified approval to the rehabilitation plans, instead issuing a proviso, because they are vulnerable to external macroeconomics conditions and have relied heavily on retained internal sources rather than external funds.

The FSC's tough action on the four large commercial banks reflects its desire to encourage a merger between the large banks to make them leading giant banks, financial experts here said.

Kangwon Bank and Chungbuk Bank also received approval with a proviso from the FSC as suggested by the Bank Appraisal Committee.

And the FSC issued conditional approval to Peace Bank of Korea, which originally earned the disapproval of the BAC. Though the BAC recommended disapproval for Peace Bank, the FSC decided to exclude the bank from its list of institutions to be liquidated at this time.

It said the bank's total assets exceeded its total liabilities as of March 31, thus it legally cannot be classified as a nonviable financial institution under the current banking law.

At a press conference at the FSC building in Yoido, Seoul, FSC Chairman Lee Hun-jai announced these and other final assessment results of the 12 banks that fail to meet the BIS-suggested eight-percent capital adequacy ratio.

The FSC arranged for Kyungki Bank to be taken over by KorAm Bank, Dong Nam Bank by the Korea Housing and Commercial Bank of Korea, Chungchong Bank by Hana Bank, Daedong Bank by Kookmin Bank and Donghwa Bank by Shinhan Bank.

As Kookmin and Korea Housing & Commercial banks have maintained a comparative advantage in retail banking for households and small and medium-size companies, they were chosen to acquire Daedong and Dong Nam, both of which specialize in smaller businesses, a FSC spokesman said.

Considering their high competitiveness in the corporate and individual sectors, the FSC requested Shinhan and KorAm acquire Donghwa and Kyungki, both of which have a strong network in the metropolitan area, respectively, he said.

Hana Bank, with a relatively small workforce, was requested to acquire Chungchong Bank, which had the least number of branch offices among the five ill-fated banks. - Courtesy News Review of Korea

Closure of five banks first steps toward 'Big Bang'

The closure of five shaky banks signals the beginning of a Korea's financial "Big Bang", industry analysts said last week.

Now that the long immunity of banks to managerial failures has come to an end, the law of the jungle will reign in the banking industry, they said.

With only five of 12 banks that failed to meet the government's capital-adequacy rules facing exit orders, the seven surviving banks will either attempt to merge with other strong banks or themselves in a bid to stay afloat.

Even the other 12 banks, categorized by the Financial Supervisory Commission as sound institutions, may launch self-rehabilitation efforts - including managerial reshuffles, mergers and personnel cuts - in preparation for the second round of bank restructuring set for August.

Besides these ailing banks, a number of securities, insurance, leasing, investment-trust and other non banking institutions are expected to face the FSC's "exit" orders by the end of July.

Aware of negative foreign reactions to the latest bank closures, the FSC is expected to apply much tougher re-structuring guidelines to non banking institutions, they said.

Meanwhile, the forced bank closures are expected to further aggravate the capital crunch in the industrial sector, small and medium-sized firms in particular. Some analysts forecast that no fewer than 300 small businesses will go bankrupt as a result of bank exits.

Reflecting these gloomy sentiments, the Federation of Korean Industries and other major business associations issued statements asking the government to swiftly complete bank takeover procedures.

The most noticeable changes within the banking industry as a result of the latest bank closures will be the emergence of a group of new bank leaders.

Kookmin, Housing and Commercial, Shinhan and Korea Exchange banks will step upto the forefront of the industry, replacing traditional leaders Cho Hung, Hanil and Commercial Bank of Korea. KorAm and Hana banks will also be given a leading role in the upcoming restructuring of the banking industry.

The FSC, in a bid to quell discontent among shareholders of leading banks, plans to adopt the purchase and assumption (P&A) method in upcoming bank mergers.

"In the P&A system, only sound assets of weak banks will be transferred to the strong banks," an FSC official said.

"By extending its guarantees to all potential risks in the process of mergers, the government is determined to help the leading banks turn into cleaner and stronger banks."

In contrast, the seven surviving banks will come under heavy pressure to implement drastic self-rehabilitation measures, including management reshuffles, employee layoffs, branch closures and capital reductions. Notably, they will be forced to halve the number of employees, financial watchers say.

Peace Bank of Korea and provincially-based banks will be stripped of foreign exchange dealings and banned from lending more than five billion won ($3.6 million) to a single corporate client under the government's policy to turn them into minibanks.

But Cho Hung, Hanil Bank and Commercial Bank of Korea may get the chance to turn themselves into global "super" banks through mergers with stronger banks and the luring of foreign investment.

No other than the FSC chairman himself expressed a strong intent to arrange a merger of the three perennial leading banks with new leading banks.

Courtesy News Review of Korea

Bottom line

By P.M.N. Bandara

Maskeliya Plantations:

Maskeliya Plantations Ltd., reported Rs. 380.7m net profit with zero tax provision for the year ended 31 March 1998. This shows 220% increase over the previous year's figure of Rs. 119.0m. However, profit available for appropriation reduced to Rs. 238m. as there was a brought forward loss of Rs. 142.4m.

Shareholders' funds increased by 62% from Rs. 445.7m. to Rs. 720 m. Turnover of the company was up by 56% from Rs. 889.8 m. to Rs. 1389.6m.

During the year the company distributed Rs.94.4m. among its shareholders as dividend.

Kegalle Plantations:

Kegalle Plantations Ltd. produced Rs. 119.8m pre tax profit for the year ended 31 March 1998 reflecting 21% increase over the previous year. Post tax profit increased by 18% from Rs. 98m. to Rs. 116m. Turnover increased to Rs. 764.2m from Rs. 699.3 m. recording an increase of 9.2%.

During the year the company paid a dividend of Rs. 50m. as against Rs. 30m in the previous year.

Shareholders' funds stood at Rs. 477.3m in March 31. This is an increase of 16% from Rs. 411.6m.

Mackie & Co:

Unaudited profit and loss account of C. W. Mackie & Company Limited shows negative performance for the year ended March 31 1998. During the year under review turnover dropped by 41% from Rs. 2779m. to Rs. 1626.8m. Despite the handsome turnover of Rs. 1626.8m, the company incurred a loss of Rs. 6.2m. As against Rs. 45m. profit for the previous year.

Shareholders' funds also dropped from Rs. 597.8m. to Rs. 551.6m during the year.

Carson Cumberbatch:

Carson Cumberbatch & Co. Ltd. reported 15.9% increase of turnover followed by 38.7% increase of profit before taxation for the year ended March 31 1998. Turnover for the year under review was Rs. 2253.9m. and profit before taxation amounted to Rs. 417.4m.

Profit after taxation increased by 50% from Rs. 214.8m to Rs. 323m. However, profit attributable to the shareholders of the company increased only by 15% from Rs. 116.3m. to Rs. 133.8m. Shareholders' funds as at 31 March 1998 was Rs. 1507 m. and it shows 32% increase. Earning per ordinary share also improved from Rs. 104.66 to Rs. 119.63.

Millers:

Unaudited financial statements of Millers Limited for the year ended March 31 1998 shows statisfactory performance. Company's profit before taxation increased by 120% followed by 147% increase of profit after taxation.

Profit before taxation and after taxation was Rs. 43.1m. and Rs. 29.7m. respectively. Shareholders' funds as at 31 March 1998 was Rs. 99.2m. This shows an increase of 43% over the previous year's Rs. 69.3m.

Male-female job gap wide in Korea

Rising female unemployment in Korea is bringing to surface the limited professional success that women have had and casting a spotlight on the nation's strong patriarchal tradition.

Companies reducing their workforce have first cut their part-time, temporary, contract and low-level positions - which are staffed mostly by women - while some women have faced outright sexual discrimination in layoffs.

On a professional level, women are expected to resign if they are earning secondary income so that men who are breadwinners can stay on.

"It's a grave situation for women," said a spokesman for the Korean Women's Development Institute. "After two to three years there should be a reversal to save money but now (companies) need to reduce the payroll."

Although the rate of female unemployment has risen from 2.8 percent in December to 5.4 percent or 464,000 in April, according to statistics from the Labour Ministry, there have not been many complaints filed with the ministry.

"We thought that the business restructuring under the IMF, women would be chosen first to get fired so we set up a specific division in January to deal with it," said a spokesman for the ministry.

There have been 117 inquiries since then and only 12 have been actual complaints, he said. "We believe that (sexual discrimination in layoffs) is possible but we cannot be sure given the low numbers of actual complaints."

"Those 12 are for the cases where they intervened," said Lee In-sook, of the Women's Employment Equity Association (WEEA), a division of Women Link (Yosong Minu-hoe).

"We can't have the exact number but we're sure it has increased."

Lee said that women who enter a company on the same level as men do not receive the chances for promotion that men receive and remain in entry level jobs. However, their pay scale increases to reflect their length of stay, thereby making them a target for layoffs in these economically lean times.

Women's rights groups also contest the government's unemployment figures because of the marginal presence of women in the corporate and business world, for which the Labour Ministry keeps unemployment data.

"There are many who are not looking for a job because they know they can't find one and many (have worked) in temporary jobs or in the 'informal' economy. We can't count that,"said Lee.

The actual rate should be 15 to 20 percent, said the KWDI spokesman, based on a comparison with a U.S. Bureau of Labour Statistics (BLS) study on Japan.

"Japan and Korea are in a similar situation and a BLS study shows that in the period between 1983 and 1993, there was a 2.8 percent unemployment rate but 11.3 percent if counting the ones not seeking jobs," he said.

The fact that a large proportion of women are in low-level jobs reflects the barriers that women in Korea face, barriers which include the precedence in families that the education of sons have over that of daughters and the preference that companies give to the hiring and promotion of men. - Courtesy News Review of Korea

Manufacturers see sharp fall in shipments

As the industrial sector approached collapse due to sluggish domestic demand and a prolonged cut in output, manufacturers' shipment for May marked the sharpest year-to-year shrinkage in 30 years, government statistics showed last week.

Wholesale and retail sales also fell to an 18-year low, and construction orders posted their largest decrease since 1976, showing the depth of the recession hitting the domestic property market, officials said.

The National Statistical Office (NSO), releasing its June industrial activity report, said output contracted 10.8 percent in May from the same month of last year, following a 10.9 percent year-on-year decline in April.

The output shrinkage, mainly affected by sluggish sales at home and slowed export growth, hit all industrial sectors - except for semiconductors and shipbuilding, the officials said.

Production decline was most severe in the car industry with 43.8 percent, followed by machine tools and heavy industry equipment (36.4 percent) and industrial electric devices (34.7 percent).

Squeezed between shrinking output and sluggish sales, May shipments fell 13.7 percent from a year ago, marking the sharpest decline ever since the government started collecting data in 1968.

While the growth rate of foreign shipments has gradually slowed since February, domestic shipment plunged 28.7 percent in the month of May, hitting their lowest level since 1985.

Inventory fell 8.4 percent, the smallest decline since the 11.3 percent drop in November 1978.

The factory utilization ratio for May stood at 66.7 percent, down 1.6 percentage points from 68.3 percent in April.

Combined wholesale and retail sales fell 16.3 percent year-on-year, the lowest since May, 1980, led by a 36.7 percent sales decline for cars and auto fuel.

Domestic shipments of consumer goods shrank 28.5 percent in May from the same month last year, mainly affected by reduced shipments of cars, garments and refrigerators.

On the investment side, domestic shipments of machine tools, a major yardstick for capital investment, decreased 47.6 percent, another record low since the NSO first released such data in 1985. Machinery imports also dropped 56.1 percent over the cited period.

Courtesy News Review of Korea.

National PVC pipes to Maldives

Central Industries Ltd, manufacturers and marketers on National PVC pipes and fittings exported another load of water pipes to the Maldives recently.

The consignment consisted of 10'' PVC pipes for large hotel construction and was the result of hard negotiations between the buyer and Central Industries. A company spokesman said that the buyer had expressed his complete satisfaction with the quality of the pipes he had seen and assured continued purchasing contracts with the organisation.

National PVC pipes are ISO 9002 certified and continue to be the only PVC pipes so accredited in Sri Lanka.

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