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

Changwoo Nam, Daehee Jeong 2015/11/11
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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.

Please refer to the URL address.
http://www.kdi.re.kr/upload/cu20151113_eng.pdf
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