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Wednesday, March 25, 2015 3:45 AM ET
At farmer-owned NongHyup Financial, top job belongs to bureaucrats
By Phil Lee
South Korea's NongHyup Financial Group Inc. is not a state-run company but could pass for one, if you only look at the resumes of its former and incoming
CEOs.
The previous chairman and CEO, Yim Jong-yong, was a career bureaucrat before taking over the company, and is now back with the government as
chairman of the Financial Services Commission.
The man next
in line for the top job at NongHyup Financial is Kim Yong-hwan, a former Finance Ministry and FSC official. He was also chairman and CEO
of state-run Export-Import Bank of Korea until 2014.
Similarly, Yim's predecessor, Shin Dong-kyu, built his career at the Finance Ministry. Shin was parachuted in within months of NongHyup Financial's creation
to replace the group's inaugural chairman and CEO who had no affiliation to the government.
NongHyup Financial, which has a range of businesses including a bank, was established in 2012 under the National Agricultural Cooperative Federation,
which is run by South Korean farmers who pay membership fees. The agricultural organization owns 100% of the company.
The appointments of Yim and Shin to the top post have been met by opposition from the group's union, which has argued that the move would open the door
to excessive government interference.
The head of NongHyup Financial is nominated by a committee formed by the company's board members, who are picked by the National Agricultural
Cooperative Federation. NongHyup Financial's banking business has been instrumental in government programs to support farmers, such as low-rate loan
schemes, while the federation has been favoring former government officials for the CEO post at the company without asking many questions.
NongHyup Financial is not the only South Korean banking group that has been run by a former government official, and questions about behind-the-scene
handshakes between companies and authorities are not uncommon in the country's financial industry. One of the former chairmen of KB Financial Group
Inc., which was created after a merger of state-run banks, was also a civil servant.
Despite its seemingly close ties to the government, NongHyup Financial is still a private sector company, meaning CEO nominee Kim has to pass a screening
process by a government ethics committee. In South Korea, to ensure there is no conflict of interest, former high-ranking government officials or executives
at state-owned companies who left their public sector jobs less than two years ago are required to receive approval from the committee to work at privately
owned companies related to their previous roles.
An official on the committee told SNL Financial that it will complete a review of Kim's eligibility for the new role on April 24.
Kim has a grand vision for the group. Speaking to local journalists after being nominated as NongHyup Financial's CEO on March 23, he said he wants to
make the company a global financial group by benchmarking France's Crédit Agricole Group, which has a similar agricultural origin.
Locally, NongHyup Financial grew substantially under Yim. One of the key events during his time was the acquisition of brokerage Woori Investment &
Securities in June 2014. The transaction was part of plans to privatize Woori Finance, which has been dissolved into Woori Bank, with speculation swirling
that NongHyup Financial had government backing to seal the deal.
The purchase has helped the group become the third-largest South Korean banking group by total assets, behind Shinhan Financial Group Co. Ltd. and KB
Financial. Before the acquisition, NongHyup Financial was No. 5.
Source: S&P Global Market Intelligence | Page 1 of 1