ANALYSIS-Asia puts offs bank privatisation to fight crisis

By Kim Yeon-hee

SEOUL, Nov 5 (Reuters) - The global downturn is forcing South Korea, Thailand and Indonesia to put on ice long-planned privatisations 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 stabilising financial markets and that could be done through state-run banks," said Park Jeong-hyun, a Hanwha Securities analyst in Seoul.

"Bank privatisation should come once financial markets stabilise 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, nationalising 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 nationalised 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, Thailand's No. 2 bank, or Siam City Bank

When South Korea's chief financial regulator, Jun Kwang-woo, said the government would be flexible about the timing of privatising 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, the country's No. 2 financial services group, and the Industrial Bank of Korea (IBK), citing market conditions.

Full privatisation 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.

SHRINKING INVESTOR POOL

With bank shares globally taking a beating -- MSCI's All-Country financial index has halved in the past year -- Asian governments are now unlikely to get acceptable prices for their bank stakes.

Thailand's FIDF has been in the process of selling its 42 percent stake in BankThai to Malaysia's CIMB, expected to be completed by Nov. 19.

But newspapers have speculated CIMB might cancel the acquisition due to the global credit crisis. A CIMB spokeswoman said on Wednesday the BankThai deal was on track and will be completed on time.

In Indonesia, the government had expected its stake sale plans of 37 state firms, including home-loan focused Bank Tabungan Negara (BTN), to contribute 5 trillion rupiah ($450.5 million) this year.

But the government has been on-again-off-again on the sale of BTN, while it has no immediate plan to sell four other state banks, including PT Bank Mandiri Tbk and PT Bank Rakyat Indonesia Tbk.

Government policy objectives may also create problems for banks, with potential conflicts of interest as both a regulator and shareholder in banks.

Analysts say fresh banking loans, funded by increased credit lines from governments and central banks, risk turning sour because many of the borrowers are in poor shape and may well need additional government capital.

For example, Siam City said on Oct. 20 that it planned to raise capital by mid-2009 to support an expansion of lending.

By comparison, the United States and Europe tend to limit their roles as a shareholder and set clear exit and dividend income plans from nationalised banks.

Woori Finance, bailed out by public funds in 2000, has been subject to tight government audit, and had to change its top management every three years.

"Such unstable management would not help banks' development," said an executive of a top South Korean banking group, who did not want to be identified in criticising government policy.

"Government should limit its role in banks as a shareholder and have clear plans on how to exit them." ($1=1274.9 Won or 11,100 Rupiah) (Additional reporting by Arada Therdthammakun in Bangkok, Gde Arka in Jakarta and Faisal Aziz in Kuala Lumpur; Editing by Jonathan Thatcher and Lincoln Feast)