Manfred Drost, a Commerzbank banker, was appointed deputy president and put in charge of risk management at Korea Exchange Bank, where there are now new guidelines on how much exposure the bank can have to any single chaebol. Whereas before, lending decisions were kept in the hands of a few senior managers, those decisions have now been handed over to committees with clear guidelines on lending policy. Making such changes hasn't been easy considering the importance of the chaebols in the Korean economy. Nonetheless, he says, Korea Exchange Bank is cutting back exposure to chaebols such as Daewoo, for example by not renewing short-term credit lines. Meanwhile, it is actively seeking out new customers among small and midsize companies, as well as in the retail sector and among foreign companies doing business in Korea.
Diversity is the watchword.
That's a big change from the past, when South Korean banks took their cue from government on whom to lend to. The result, notes Andrew Cainey, a vice president at the Boston Consulting Group in Seoul, was that banks tended to focus on the amount of money lent rather than the quality of the credit risk, and did little to develop their credit-rating skills. The move toward prudent banking practices was long overdue, and not just in South Korea. In Indonesia, for example, many of the banks routinely ignored central bank regulations and guidelines on lending limits to related companies or individual borrowers. Much of the past two years has been spent trying to deal with the resulting bad loans.