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ADMIN 2021. 03. 05.  
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   제목: Korean banking groups at risk of losing governance autonomy

Korean banking groups at risk of losing governance autonomy


February 19, 2021


By Lee Min-hyung

Financial holding firms here will have less and less leeway in setting key agendas, as their largest shareholder ― the National Pension Service (NPS) ― is on track to widen its influence on their top management.

The NPS is the largest shareholder of the nation's top four financial firms ― KB, Shinhan, Hana and Woori ― according to the latest data. The pension fund obtained more than 9 percent stakes in each of the companies as of the end of September 2020. This figure is slightly below the legal limit of 10 percent. Under the local financial law, a single investor cannot purchase more than a 10 percent stake in a single financial holding firm.

The NPS' influence poses a possible threat to the financial players ahead of their planned shareholders' meetings in March. Last year, the NPS casted negative votes on their major decisions, including leadership tenure extensions and dividend rights.

The world's third-largest pension fund voted against the extension of the tenures of Shinhan Financial Group Chairman Cho Yong-byoung and Woori Financial Group Chairman Son Tae-seung during last year's shareholders' meetings.

"Even if major agendas are not voted down simply due to the NPS' rejection, its growing influence comes as a serious burden for major banks and their holding firms here," a bank official said. "It is natural for shareholders to express their voting rights, but their repeated opposition to banks' management drives will hold back the rapid progress of our key projects."

The NPS introduced a stewardship code back in 2018 and has since taken part in corporate governance issues at around 300 local firms that received investments. The code consists of a series of principles and guidelines for institutional investors to proactively exercise their voting rights in listed firms.

Another industry source said that the NPS' voting power would not cast a "threatening" level of influence to determine whether to pass agendas during the shareholders' meeting, as more than half of the shareholders of Korea's major financial firms consist of foreign investors.

"Foreign investors and institutions hold more than 50 percent of stakes in major financial firms ― such as KB and Shinhan," the official said. "It is theoretically impossible to say that the NPS can vote down key agendas only with its own voting power. But the financial firms keep a close watch over the fund, as its decisions can affect ones from foreign investors."


Seen above is the headquarters of the National Pension Service in the nation's southwestern city of Jeonju. Yonhap
Seen above is the headquarters of the National Pension Service in the nation's southwestern city of Jeonju. Yonhap

Leadership extensions

One of most attention-grabbing agendas to be discussed during their upcoming shareholders' meeting is the leadership extension of major banks here.

Hana Financial Group is the only one of the big four financial firms whose chairman is subject to change next month. For now, incumbent leader Kim Jung-tai is likely to extend his term for another year, as other major candidates are faced with legal disputes.

Hana Bank CEO Ji Sung-kyoo is also expected to extend his tenure after the planned shareholders' meeting. Ji has been recognized for allowing the bank to report stable earnings in 2020 despite the coronavirus pandemic. The lender reported 2.01 trillion won ($1.8 billion) in net profit last year, down 6.1 percent from the previous year. But the group considers the performance to be robust enough at a time when most lenders had to increase the allowance for bad debts amid the unexpected pandemic shock throughout 2020.

The tenure of Woori Bank CEO Kwon Kwang-seok will also likely be extended on his year-long efforts to regain public trust after the lender was mired in a nationwide scandal surrounding soured investments in derivatives-linked funds. He took office under a one-year tenure in March last year, so he is expected to be given a chance to work for another year to keep stabilizing the firm and push for its digital transformation throughout 2021.

The tenure of Kakao Bank CEO Yoon Ho-young also expires after the lender's shareholders' meeting next month. But few expect that Yoon will be replaced with another figure, as the nation's leading Internet-only bank has reported steep growth under the leadership of Yoon since 2017, when it started business.

The lender achieved a record net profit of 113.6 billion won in 2020. Kakao Bank also plans to go public sometime in the latter half of 2021, so it appears unlikely that the lender will push for what is widely considered an "unnecessary" leadership reshuffle at this crucial juncture.

"Most leaders in the banking industry will likely extend their terms this year, as banks will continue to keep stability over drastic changes in their leadership amid lingering uncertainties over the COVID-19 aftermath," an industry source said.

Last year, many local banks' earnings declined in the face of the economic doldrums that followed both the coronavirus outbreak and years of low interest rates, but most incumbent leaders managed to weather the unexpected external shock throughout 2020, according to the source.

Shinhan and Woori also plan to confirm next month whether to abide by the Financial Services Commission (FSC)'s guideline to lower their dividend payout ratio to 20 percent for 2020. Earlier, KB and Hana decided to do so despite their record yearly earnings amid pressure from the watchdog.

Excerpts articles from The Korea Times
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