Tie-up of two largest banks would require trimming staff to stay productive, analysts say


Eyes are drawn to the likelihood of a merger between the nation’s two largest financial groups as their chiefs appear to be setting the mood by making favorable remarks.

Market watchers, however, are skeptical about the productivity of the mega bank they would create.

Woori Financial Group chairman Lee Pal-seung expressed once again his positive stance towards a merger with KB Financial Group.

“We are open to all forms of privatization ― whether Woori merges with KB Financial or is acquired by a consortium,” Lee told reporters on Tuesday. 

“It would be desirable if (the merger with KB Financial) allows us to become a global bank and helps improve the financial industry.”

Lee said he did not hear of any financial group other than KB that was interested in buying a controlling stake in Woori.

The Public Fund Oversight Committee, which handles state asset sales, is to receive preliminary bids for the government stake in Woori until July 27. The government is eager to retrieve some 12.8 trillion won ($11.06 billion) in public funds used to bail out Woori in 2001.

KB Financial Group chairman Euh Yoon-dae said he was interested in Woori Financial as long as two conditions were met ― the government should not exercise shareholder rights, and the merger should create synergy to raise shareholder value.

Foreign shareholders who control a 65 percent stake in KB Financial do not want the government exercising shareholder rights, Euh told a local newspaper.

He added that KB wouldn’t have problems in financing the merger.

The government plans to give up exercising shareholder rights even if it retains a stake in Woori after the sale.

Woori Financial expects KB Financial to make a bid.

The envisioned tie-up would be the largest-ever merger case in Korea, with combined assets of the two financial groups amounting to 604 trillion won ($522 billion) ― Woori’s 319 trillion won and KB’s 285 trillion won as of March.

The merger of Woori Bank and KB Kookmin Bank would create a mega bank that ranks 40th in size in the world.

But it would have the lowest productivity, or net profit per employee, among major local banks, according to some analysts.

“It would be necessary to get rid of redundant branches and staff to reduce labor costs, but this won’t be easy due to opposition from the union,” said Kim Kun-woo, an analyst at LG Economic Research Institute.

“Enlarging the size through a merger doesn’t always lead to higher competitiveness.”

The combined net profit of KB Kookmin Bank and Woori Bank last year reached nearly 4 trillion won, almost double the net profit of Shinhan Bank which was the most profitable bank.

Combined, the number of branches run by KB Kookmin and Woori is 2,107, more than double the 1,012 branches of Hana Bank and affiliate Korea Exchange Bank under Hana Financial Group.

But since KB Kookmin and Woori employ nearly 37,000 people together, more than double the staff number of Hana Bank and KEB, their net profit per employee lags far behind.

The net profit per employee of KB Kookmin and Woori comes to around 108 million won, much less than 148 million won of the Industrial Bank of Korea and 140 million won of Shinhan Bank.

KB Kookmin failed to downsize its staff after a merger with Housing and Commercial Bank in 2001, becoming a bank with the smallest net profit per employee.

“It takes a lot of time to curtail staff or branches. Considering the national risk of banks that are ‘too big to fail,’ merging the two large banks is not a good idea,” Park Deok-bae, an analyst at Hyundai Research Institute said.

By Kim So-hyun (sophie@heraldcorp.com)