Nov. 17 (Bloomberg) -- KDB Financial Group Inc., South Korea’s largest state-run banking group, aims to list its shares on the New York Stock Exchange in 2012 as the government reduces its holding in the company, Chairman Min Euoo Sung said.

“A New York listing would make a significant difference to the group’s brand recognition and would be helpful in pursuing our strategy on mergers and acquisitions,” Min, 55, said yesterday in an interview in Seoul. “It’s a goal that can easily be reached for KDB.”

Min is undeterred in efforts to make KDB Financial one of Asia’s top five lenders in five years, after walking away from talks to buy Lehman Brothers Holdings Inc. last year amid a price dispute. The chairman, who earlier headed Lehman’s Seoul branch, plans to bolster KDB’s market value with acquisitions before a proposed initial public offering in South Korea in 2011.

“We should be able to start execution on at least two deals to prove our growth potential to our IPO investors” next year, said Min, who is also chief executive officer of the company’s Korea Development Bank unit. “Next year is very important.”

The two acquisitions would be in Asia, Min said, without naming potential targets or countries. The company is in talks to get approval from the government about its listing and expansion plans, he said.

KDB Financial was set up last month as a holding company for Korea Development Bank and four other units as South Korean President Lee Myung Bak pushes for privatization to make the financial industry more competitive. A parliament-approved plan calls for an unspecified amount of government shares in the company to be sold by no later than May 2014.

Funding Sources

An acquisition is key to boosting Korea Development Bank’s deposits, which are funded mostly through corporate transactions. Adding new funding sources is an “absolute necessity” for the bank before it becomes private, Min said.

“There is considerable uncertainty as to whether KDB can enhance its funding profile and asset quality to the level of its domestic commercial peers before the government’s ownership drops below 50 percent,” Youngil Choi, a senior analyst at Moody’s Investors Service, wrote on Nov. 16.

KDB wouldn’t increase its local branches aggressively even after acquiring a bank because of curbs on deposit competition, Choi wrote. The government may also ask KDB continue its “public policy function,” impeding the bank’s efforts to improve asset quality, the analyst wrote.

Korea Development Bank was set up in 1954, a year after the Korean War, to fund reconstruction and industrial development. The bank has been used by the government to prop up failing companies after the 1997-1998 financial crisis and was forced to channel credit to cash-strapped companies after last year’s credit crisis.

KDB Financial doesn’t intend to compete with local peers and will focus on growth overseas, Min said.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

Last Updated: November 16, 2009 19:51 EST