Welcome to BASE21

Furthermore, Minister of Finance and Economy Lee Hun-jai said recently that the government would not push for any bank mergers this year.

However, unionists are not buying the government's argument.

"The government must revoke its plans to integrate Hanvit, Cho Hung and Korea Exchange banks," said the KFBU head in response to hearing the government's plan earlier last month.

The KFBU is convinced that financial holding companies will have the same effect as mergers and will eventually cause layoffs and downsizings.

"Implementation of the holding company law will bring about cost reductions by making part of bank human resources redundant," said Choi Kyoo-duk, a high ranking KFBU official. "So why argue that financial holding companies are any different from mergers?"Choi also added that the formation of holding companies is basically a ploy designed to sell off the government's stakes in the three nationalized banks - Hanvit, Cho Hung and Korea Exchange - to foreign investors.

As a result, bank union leaders stand fast against the government's proposed marriage of state-held banks which they say will lead to massive layoffs and only benefit foreign capital.

The KFBU and some banks argue now that all nonperforming loans have been disclosed, banks may be brought back to health through operational profits, if granted some breathing room of some 3-4 years.

The rising opposition has sparked speculation that the government's motive behind promoting integration in the financial industry stems from reasons other than simply raising international competitiveness, as it claims.

The government has so far injected some 102 trillion won in public funds into the financial sector and 30 trillion won more scheduled by next year, which has made the government the greatest stakeholder in the banking industry.

Faced with the need for quick fund retrieval and under growing pressure from the IMF for bank reprivatization, the government has been seeking to sell its huge stockholding.

However, bank stock prices have been down and the government is not too keen on losing money.

From an investor standpoint, the government has so far made a poor investment and either needs to cut its losses or work to raise bank share prices.

This is precisely what some experts believe is the driving factor behind the government's scheme to combine banks into financial or banking holding companies.

"The government's ultimate goal is to redeem its investments on the banking sector by boosting stock prices," according to one industry analyst. "As a result, they have been pushing for the consolidation of weak banks and establishing stronger and larger financial institutions, which would likely boost share prices."

The government rebuts this, refusing to yield its stance that it is trying to promote international competitiveness of the local banking sector by cleaning up nonperforming loans and increasing assets.

The government is expected to announce its long-term plan to reprivatize the banking sector July 15.

Experts said the plan may include converting the goverment's stakes in the three banks into equity in a financial holding company. Earlier last month, the government hinted it would induce the combination of Cho Hung, Hanvit and Korea Exchange banks into a massive financial holding company with assets of 200-300 trillion won and worldwide ranking among the top 50 banks.

The government then rushed out to draft a bill for the establishment of financial holding companies so that it may meet National Assembly approval by the end of June and thereby kickstart its master scheme.

Yet another factor hindering the government's scheme is related to banks' reluctance to lend out the desperately-needed capital to corporations, which has been causing a widespread credit crunch.

This is because banks want to have a favorable position when entering consolidation or merger talks. Consequently, experts say banks feel they need to maintain a high capital adequacy ratio to gain an upper hand in such negotiations, which is causing banks to shy away from lending out funds to risky companies.

Government officials will thus most likely be strapped in negotiations with labor union officials to avert another large-scale work-stoppage, thus making key decisions affect the fate of the nation's financial restructuring process.

Regardless of this week's outcome, many experts are led to think that the government will be forced to alter its bank-restructuring scheme. "The government's expectations to merge the banks through financial holding companies seems to have turned into a meager hope," an analyst said.