Bank CEOs vow to take cuts in pay
Written by Writer on Thursday, October 23rd, 2008
Bank CEOs vow to take cuts in pay
The Korea Herald
Thursday, October 23, 2008
In a major contrast from other global executives, CEOs of Korean banks yesterday pledged to voluntary accept pay cuts and other measures in return for the government’s bank rescue package.
Finance Minister Kang Man-soo said the authorities would take steps to prevent “moral hazards” in the banking sector, for which the government has pledged to use $130 billion of taxpayers’ money amid the global financial rout.
“We, the banks, feel deeply regretful and responsible for the current situation and are committed to sharing the pain of the public and doing our part for the quick recovery of the economy,” the chief bankers said in a joint statement.
Eighteen CEOs, including Kang Chung-won, head of the country’s largest lender Kookmin Bank, signed the statement. It said they would also slash salaries of executives, seek to freeze wages and make other cost-cutting steps.
For instance, executives of Kookmin Bank would return 5 percent of their salaries to the company next year.
The banks also pledged to increase loans to small companies facing liquidity problems amid the global credit crunch and extend mortgage periods.
The moves came one day after President Lee Myung-bak said during a Cabinet meeting that it is not appropriate for banks to keep their high pay structure, while receiving state support, which comes from “taxpayers’ pockets.”
Pressure has been mounting on the banks to accept compromises in return for the government’s $130 billion aid package announced Sunday.
The government decided to guarantee up to $100 billion in foreign currency debt owed by local lenders and offer $30 billion to cash-strapped banks as part of efforts to shore up the banking sector.
The rescue package reminded many of the 1997-98 Asian financial crisis, when local banks were bailed out by the government.
Lim Seung-tae, secretary-general of the Financial Services Commission, said yesterday that the authorities were studying ways to prevent moral hazard among beneficiaries.
“The government’s guarantee of bank debt adds burden on taxpayers. So we are considering making it a condition of the aid that beneficiary banks take self-help steps, in order to prevent moral hazard,” he told a radio program.
Banks may be restricted from taking on more foreign-currency debt using the state guarantee to increase assets, or face penalties when found to be mishandling overseas assets, Lim said.
As credit markets have tightened after the collapse of Lehman Brothers, Korea’s banks have scrambled to secure the dollars needed to repay maturing foreign-currency loans.
Seoul’s action to aid banks came after Standard & Poor’s said last week that it placed seven Korean banks and financial institutions on the list of candidates for possible rating downgrades, citing concerns over their foreign borrowings.
The announcement spooked foreign investors.
But the credit rating agency now says it is considering removing the Korean firms from the list, after the rescue package was announced.
By Lee Sun-young
(milaya@heraldm.com)
