[Deputy Manager Column] There Is No Free Lunch... Time for Owners to Show Responsible Management

[Asia Economy Reporter Kangwook Cho] Last week, emergency funding support totaling 2.9 trillion won was decided for the two major domestic national airlines, with 1.2 trillion won for Korean Air and 1.7 trillion won for Asiana Airlines. Earlier, at the end of last month, 1 trillion won was injected into Doosan Heavy Industries. Additionally, a $500 million (approximately 600 billion won) foreign currency bond nearing maturity was converted into a loan. The creditor group, including KDB Industrial Bank, stated that due to the severe liquidity shortage, policy-based financial support was inevitable. The corporate bond issuance volume has already shrunk to half compared to last year due to the cooling of the corporate bond market.

Domestic banks, including policy banks, are currently acting as emergency rooms for companies. The loan volume to large corporations by the four major banks?KB Kookmin, Shinhan, Hana, and Woori?in March increased by more than 11% compared to the previous month. However, as deflation fears grow due to a corporate shock exceeding expectations, there are concerns that if this spreads to financial institutions acting as a breakwater for the real economy, it could trigger a crisis similar to the past financial crisis.

Looking back, until the mid-1990s, the domestic banking sector was summarized by the phrase 'Jo-Sang-Je-Han-Seo,' referring to the five banks established before liberation: Choheung, Commercial, Jeil, Hanil, and Seoul Banks, which shared more than 80% of deposits. However, this era ended with the foreign exchange crisis at the end of 1997. Large corporations such as Hanbo, Daewoo, and Ssangyong Group went bankrupt one after another, and these banks also struggled with non-performing loans. The first to start was Seoul Bank, which was merged into Hana Bank in 2002. Following that, Jeil Bank was acquired by Standard Chartered Bank in 2005, and in 2006, Choheung Bank was merged into Shinhan Bank, which had been established for only about 20 years. This was a major event that changed the landscape of the banking industry.

Financial institutions emphasize that before actively supporting corporate normalization, pain-sharing and responsibility fulfillment by major shareholders and self-help efforts must precede. They also stressed preventing moral hazard such as restrictions on high salaries, dividends, and treasury stock acquisitions regarding airline support. In the case of one airline receiving support this time, hundreds of billions of won were paid last year to the former chairman, including retirement pay and salary.

The business community demands drastic measures, saying, "Companies struggling due to the unexpected COVID-19 must be saved unconditionally." However, no one would jump out of a falling plane with a parachute. This is the first principle of economics: "Every choice has a cost." In other words, there is no free lunch in the world. Now is the time for owners themselves to show responsible behavior.

This content was produced with the assistance of AI translation services.