Swayed by the Central Association's Influence... NongHyup Financial Group Fails to Fulfill Its Role

The Central Association Owns 100% Stake
Decline in Issue Response and Coordination Abilities
Growth Limits Without Checks and Balances

[Asia Economy Reporter Park Sun-mi] "The purpose of the financial sector in the restructuring of NongHyup's business structure is to enhance expertise and competitiveness to grow into a global financial group. However, the business performance of NongHyup Financial Group has been poor, and it seems difficult to achieve the originally planned goals."

This is a recent evaluation by the National Assembly Budget Office regarding NongHyup Financial Group, which was launched in 2012 with 100% investment by NongHyup Central Association during the separation of credit and economic businesses.

There are criticisms that Chairman Kim Kwang-soo of NongHyup Financial Group is heavily influenced by NongHyup Central Association, which owns 100% of the shares, resulting in a significant decline in the ability to lead subsidiaries. There are concerns that without clear checks and balances on NongHyup Central Association, growth as a financial group will face limitations.

According to the National Assembly Budget Office's "Evaluation of NongHyup Economic Business Revitalization" on the 12th, the annual capital expansion plan in the "Business Structure Restructuring Support Implementation Agreement" of NongHyup Central Association aimed to increase net income from 1.0382 trillion KRW in 2012 to 2.7817 trillion KRW in 2019. Actual performance fluctuated from 256.9 billion KRW in 2012 to 887.8 billion KRW in 2019, showing a large gap from the target.

The National Assembly Budget Office pointed out that the decline in dividends to NongHyup Central Association due to deteriorating profits of financial affiliates led to a decrease in net income and worsening cash flow. The goal of strengthening expertise and competitiveness in the financial sector to grow NongHyup Financial into a global financial group and to enable the financial sector to serve as a cooperative profit center supplying funds smoothly for cooperative operations has faltered.

This is why there are explicit government demands stating, "It is necessary to strive to strengthen financial competitiveness as originally planned through selection and concentration on NongHyup Financial's future core businesses and strengthening risk management related to corporate loans."

‘Gwanpia’ Safe Haven NongHyup Financial Group
Swayed by Major Shareholder NongHyup Central Association, ‘Walking on Eggshells’

There are criticisms that NongHyup Financial Group, among major domestic financial holding companies, is a representative 'Gwanpia (bureaucrat + mafia) safe haven,' revealing its growth limitations as a financial holding company. Except for the first chairman Shin Chung-sik, all chairpersons of NongHyup Financial have been former bureaucrats. Kim Kwang-soo, who is about to complete his term in April next year after a successful '2+1' reappointment, is also a typical Gwanpia. It is an industry consensus that a chairman from a Gwanpia background must follow the strong control of the major shareholder NongHyup Central Association, which wields all personnel, budget, and audit rights. Nominally, the financial holding company chairman has authority over subsidiary personnel, but in reality, proactive and independent decision-making is impossible.

In fact, the reason NongHyup Financial was late in responding to the Korean New Deal policy, which major domestic financial holding companies actively embraced, was said to be because NongHyup Financial could not make independent decisions due to watching NongHyup Central Association.

After the breakfast meeting on July 23 between Financial Services Commission Chairman Eun Sung-soo and the chairpersons of the five major financial holding companies, where the Korean New Deal policy was discussed, four major financial holding companies except NongHyup Financial immediately presented various group-level strategies and countermeasures. However, NongHyup Financial only announced plans to invest 8 trillion KRW in the Green New Deal by the end of August through NongHyup Bank and revealed a 14 trillion KRW scale investment plan at the Korean New Deal strategy meeting hosted by President Moon Jae-in on September 3, around the time other financial holding companies announced additional support measures. The industry then evaluated, "The financial holding company’s decision was too late because it was watching NongHyup Central Association."

Financial Holding Companies Must Balance and Synergize Financial Affiliates...
Unresolved Issue of Bank-Nonbank Imbalance

There are also criticisms that NongHyup Financial is failing to balance and create synergy among financial affiliates. In his New Year's address, Chairman Kim vowed, "We will balance banks and non-banks." However, NongHyup Financial was still marked as one of the financial holding companies with a severe bank-nonbank imbalance this year.

Based on the first half of this year's performance, NongHyup Financial's net income was 910.2 billion KRW, of which NongHyup Bank earned 726.8 billion KRW, accounting for more than 80% of the total. During the same period, KB Financial Group's net income was 1.7113 trillion KRW, with banks accounting for about 70% at 1.2467 trillion KRW, and Shinhan Financial Group's net income was 1.8055 trillion KRW, with banks accounting for about 63% at 1.1407 trillion KRW.

Under the leadership of a Gwanpia chairman, NongHyup Financial's management goals are always detached from reality. After the business restructuring in 2012, NongHyup Financial's net income fluctuated from 451.4 billion KRW to 1.7796 trillion KRW in 2019. However, the 2019 performance achievement rate against this year's 3.7 trillion KRW target was only 48.1%. The original vision and goals of NongHyup Financial after the business restructuring were total assets of 420 trillion KRW, net income of 3.7 trillion KRW, and return on equity (ROE) of 11.5% by 2020.

A financial industry official pointed out, "If there is no check on the power of the Central Association and the identity remains weak, it will be difficult for NongHyup Financial to overcome its limitations as a financial holding company."

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