Asia puts offs bank privatization to fight crisis

By Kim Yeon-hee - Analysis

SEOUL (Reuters) - The global downturn is forcing South Korea, Thailand and Indonesia to put on ice long-planned privatizations of banks which are either now needed as policy tools or look unattractively short of capital.

As crumbling financial markets hammer asset values of banks across Asia and with no sign of any quick recovery, governments are unlikely to dare loosen control over banks already in their charge and may well tighten their grip.

"In the current situation, governments have to take a leading role in stabilizing financial markets and that could be done through state-run banks," said Park Jeong-hyun, a Hanwha Securities analyst in Seoul.

"Bank privatization should come once financial markets stabilize and we gain confidence in them."

The delay also means retreating from attempts to reform and consolidate the region's battered banking sector, which Asian governments spent hundreds of billions of dollars bailing out in the wake of the 1997-98 Asian financial crisis.

It also removes potential extra revenue just as governments want to boost fiscal spending to cushion the impact of a looming global recession.

Governments around the world have so far agreed to inject more than $4 trillion into banks, nationalizing some and guaranteeing deposits for many.

"In the short term, we should expect to see more government intervention in banks in order to support them through the credit crisis, not less," said David Marshall, Managing Director of Fitch Ratings.

"In some other countries, banks are being wholly or partly nationalized as part of government support mechanisms. I would not expect to see this happen on a significant scale in Asia but banks may well need liquidity support from central banks."

DELAYS

The Bank of Thailand's rescue arm, Financial Institutions Development Fund (FIDF), said last month market conditions meant it was not ready to sell stakes in Krung Thai Bank KTB.BK, Thailand's No. 2 bank, or Siam City Bank SCIB.BK.

When South Korea's chief financial regulator, Jun Kwang-woo, said the government would be flexible about the timing of privatizing Korea Development Bank (KDB), it was taken as a signal of a delay in what has been central to ambitious financial reforms President Lee Myung-bak wanted to wrap up by 2012.

South Korea has also put off cutting its 73 percent stake in Woori Finance Holdings (053000.KS), the country's No. 2 financial services group, and the Industrial Bank of Korea (IBK) (024110.KS), citing market conditions.

Full privatization of the three banks is valued at more than 37 trillion won ($29 billion), according to a KDB estimate and market prices.

Instead, the government is now set to inject 1 trillion won in KDB and 500 billion won into IBK to give them room to expand lending to cash-strapped small companies.