Two cheers for Korea. The decision to sell troubled Korea First Bank to a group of American investors marks a watershed in Korean financial reform. Putting the bank in the hands of experienced managers should act as a powerful catalyst for change, helping to erode the traditional practice of lending on the basis of bigness or political connections rather than sound credit analysis. If Korea First can now be transformed so that it lends on objective criteria and shows strong profitability, the rest of the banking industry will have little choice but to follow its lead.
South Koreans are predictably wringing their hands at the loss of sovereignty that the sale of a bank to foreigners implies. Instead, they should be rejoicing at the prospect of a new beginning for the weakest part of their economy, one that should free it from the shackles of political control. Modern banking practices of the sort that Newbridge Capital's management team will bring make it less likely that Korea will ever again endure the humiliation of having to crawl to the International Monetary Fund for a bailout, as it did at the end of 1997. Dispensing credit on the basis of whether or not a borrower can repay the money also will mean new choices for Korea's consumers and small and midsize businesses, which have long been neglected by the country's big banks.
There's still a lot to be done to clean up the financial sector, notably by getting the chaebol out of the business of owning financial institutions. Still, President Kim Dae Jung's determination in pushing ahead with the sale in the face of public and bureaucratic resistance ranks as another act of courageous leadership on the part of a man who is one of the region's most impressive leaders.
Perhaps most important, putting banks in truly private hands should help smash the unholy alliance between the government and the chaebol. For it is the banks that have funded the chaebol's starry-eyed expansion dreams, often at the urging of the government. Ending corrupt lending will go a long way toward cleaning up Korean politics as well. If Newbridge delivers what it promises, whatever profits investors make will pale beside the gains for Korea.