South Korea's LG Card Co, on the brink of bankruptcy in November, ousted US-controlled Korea First Bank as its main banker and chose state-owned Woori Bank instead. Woori helped Korea's biggest credit-card company secure a 2 trillion won (US$1.7 billion) emergency loan 10 days later, and led a 5 trillion won bailout earlier this month.
"They had to get the foreigner out of there to clinch the bailout," said James Rooney, president of Seoul-based Market Force Co, which advises overseas investors in South Korea, and former president of Templeton Investment Trust Management Co in Seoul. "It's a Korean solution."
LG Card's rescue shows that South Korean companies still rely on support from local banks and the government, even after the nation threw its banks open to overseas investment after the 1997-1998 financial crisis. Foreigners own 30 percent of Korea's US$662 billion banking market from 1 percent in 1997.
Some Korean bankers and regulators caution against letting that share grow as the government completes the sale of banks it bailed out during the crisis. On the block this year are a 22 percent stake in Hana Bank, Korea's fourth-largest lender, and 15 percent of No. 3 Woori Bank's parent company.
"It would be prudent to think twice before handing over major financial institutions," Hana Bank Chief Executive Officer Kim Seung Yu told reporters last month. "It would be difficult to manage policy and the foreign-exchange market if a major domestic bank is owned by foreign interests."
Standard Chartered Plc and HSBC Holdings Plc have said they want to expand in Asia's No. 3 commercial banking market, where household lending has more than doubled since 1997.
Korean law requires investors to seek regulatory approval to buy more than 4 percent of a domestic bank. The government waived that requirement for overseas buyers during the crisis, allowing funds such as San Francisco-based Newbridge Capital Ltd -- Korea First Bank's owner -- to take controlling stakes in ailing Korean lenders.
Jun Kwang Woo, vice chairman of Woori Bank's parent company, voiced concerns.
"Some Korean bankers are concerned about the leakage of internal information to foreign investors," Jun told reporters on Dec. 10. "I partially share that view."
Former finance minister Lee Hun Jai, who helped pull South Korea out of the Asian crisis by selling Korean assets to international investors, is now trying to keep Woori Bank and Hana Bank in Korean hands.
He said on Jan. 9 he aims to raise at least 3 trillion won for the first-ever domestic fund to buy bank stakes.
Regulators may be concerned that foreign-owned lenders will be less likely to follow government orders, according to Eugen Loeffler, chief executive officer of Hana Allianz Investment Trust Management Co, a venture between Germany's Allianz AG and South Korea's Hana Bank.
"I understand why the government isn't comfortable to see foreign market shares rise because that means it would be difficult to control banks," Loeffler said.
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