South Korea To Split KDB Into Holding, Policy Entities

SEOUL (Reuters) – South Korea’s financial watchdog on Tuesday finalised plans to split state-owned Korea Development Bank (KDB) into a holding company and a policy body, an effort aimed at spurring the country’s flagging banking sector.

The Financial Services Commission (FSC) said KDB, which is expected to have 172 trillion won ($138.3 billion) in total assets by end-August, would be divided into a policy institution and a holding company, which would retain its banking operations.

The process would be completed by October, the FSC said.

“The assets are being divided up so that KDB can maintain its competitiveness after the split and in order to facilitate an eventual sale” of the holding firm, the FSC said in a statement.

Along with the split, stakes in various state and private companies currently held by KDB would be divided up between the policy unit and the banking operations.

The FSC said KDB’s stakes in Hynix Semiconductor (000660.KS) and Hyundai Engineering (000720.KS) would be transferred to the policy body.

KDB’s stakes in Daewoo Shipbuilding (042660.KS) and STX Pan Ocean (028670.KS) would remain with the banking arm, it said.

The KDB plan, already approved by Parliament, is the centrepiece of an ambitious drive by the current government to turn KDB into an independent bank and industry role model.

But sceptics have questioned whether KDB can successfully break from the past at a time when it is used as a policy tool by the government in efforts to restructure the country’s bloated family-owned conglomerates.

Investors remained doubtful that a mere administrative breakup could turn the bank around.

“(KDB’s) net interest margin is lower than average, and it has far fewer branches than private commercial lenders,” said Lim Il-sung, an analyst at Meritz Securities.

“It probably will need something else, and may have to acquire another bank or financial institution, to really compete on par with its private commercial rivals.”

KDB’s net interest margin was 0.3 percent in 2007, far below the industry’s 2-3 percent average, but employee wages are at the top of industry levels. 

KDB has 45 domestic branches, compared with 1,200 for KB Financial Group (105560.KS) unit Kookmin Bank. ($1=1244.0 Won) (Reporting by Marie-France Han and Rhee So-eui; Additional reporting by Joungyoun Park and Shin Ji-eun; Editing by Jonathan Hopfner)