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Impact of Government-owned Banks on the Restructuring of Marginal Large Enterprises

Changwoo Nam, Daehee Jeong 2015/11/11
Summary and Policy Implications

■ Government-owned banks have been unsuccessful in making effective progress in the restructuring of marginal large enterprises over the past few years.

○ Government-owned banks have a tendency to inefficiently allocate financial support by delaying the workout timing and expanding the support.

○ Moreover, ‘workout’ companies with government-owned banks as the main creditor bank are passive in asset sales and labor restructuring.

○ The results indicate that government-owned banks are in the position wherein they have to reflect factors other than economic feasibility in the process of restructuring marginal companies.

■ In this context, measures to implement corporate restructuring more effectively must be sought when defining the role of government-owned banks.

○ The financial authority should encourage corporate restructuring in the market by allowing government-owned banks to sell marginal companies to independent corporate restructuring firms who are free from conflicts of interest between lenders to manage the asset sale proceedings.

○ Furthermore, the financial authority should work to gradually reduce government-owned banks’ financial support that has been too large so that the efficiency of financial support allocation could be enhanced.

○ Meanwhile, government-owned banks need to identify non-viable firms through a rigorous due diligence process and promptly induce them to file with the courts for corporate rehabilitation while concentrating their policies on providing restructuring support to SMEs experiencing market failure.

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