Hanbo Scam A Case For Financial Reform

The collapse of South Koreas Hanbo Steel Co in a loans scandal has exposed the need to eliminate corruption by speeding up financial restructuring, analysts yesterday said.

The government will try to expedite financial restructuring to avoid another embarrassment like the Hanbo scandal, said Kim Byong-sok, an analyst at Hannuri-Salomon Securities.

Some analysts warned, however, that change could be delayed because President Kim Young-sams administration may not favour drastic change in a presidential election year.

Speedy reform could result in some painful adjustments which the government might not want to risk in a politically important year, said Im Joon-hwan, a banking analyst at Schroders Securities.

The nations second largest steelmaker borrowed five trillion won ($5.8 billion), about 20 times its net worth, mainly to finance a new steel mill which analysts said made no economic sense.

Hanbo Steel, flagship of Hanbo Group the nations 14th largest business was declared insolvent on January 23.

Opposition parties called the loans the biggest financial scandal in the nations history and have accused the government of peddling influence to pressure banks into offering loans.

Last week, the Office of Bank Supervision blamed banks for extending loans to Hanbo Steel without proper credit analysis. The bank watchdog plans to announce disciplinary punishments on Tuesday against banks and their executives involved in the scandal.

Moodys Investors Service lowered the long-term ratings of the three Korean banks Korea Exchange Bank, Korea First Bank and Cho Hung Bank with the biggest exposure to Hanbo Steel. The ratings agency said that its action reflected the continued deterioration in the banks asset quality.

Analysts said the banking industry has been plagued by corruption, risky loans and poor credit screening.A total of 18 heads of local banks have been placed in custody or forced to resign since President Kim took office in 1993 on an anti-corruption platform, they said. Most were found to have received bribes from borrowers.