The National Agricultural Cooperative Federation has accepted direct elections for its chairman by members.
With a capital injection of about 1.1 trillion won expected, NH Financial may strengthen its position as a top-four banking group.
Kang Ho-dong, Chairman of the National Agricultural Cooperative Federation, center front row, delivers a statement to farmer members and the public at the federation’s headquarters in Jung District, Seoul, on the 21st.
[Insight Korea = Park Ji-hun]
As the National Agricultural Cooperative Federation moves faster on governance reform, including accepting direct elections for its chairman by cooperative members, attention is turning to whether NH Financial Group could gain greater autonomy. Although the core of the reform focuses on restructuring the federation and its economic holding company, the direction also aims to reduce the federation’s influence over personnel and management. That is raising expectations that NH Financial could strengthen responsible management.
According to financial industry sources on the 22nd, the federation said the previous day that it would accept “direct election of the federation chairman by cooperative members” and move quickly to implement 13 innovation recommendations from the NongHyup Reform Committee, including governance improvements.
Kang Ho-dong, chairman of the National Agricultural Cooperative Federation, said, “We will improve the decision-making participation structure so that member sovereignty can be strengthened in a practical way.”
“NongHyup will use this period of reform as a new starting point to restore farmers’ trust, strengthen member sovereignty and drive a major transformation of Korean agriculture and rural communities,” he said.
NongHyup has long been cited as a target for government reform because of problems including concentration of authority in the federation, a structure centered on cooperative heads, weak internal controls and sluggish economic businesses. In response, NongHyup launched a reform committee composed mainly of external experts and accepted the 13 innovation recommendations proposed by the committee.
Reform Could Improve Autonomy and Ease Financial Burden
The reform is expected to focus on the federation and its economic holding company, but it could also lead to improved autonomy for NH Financial Group. Measures such as limiting the appointment of retired federation and affiliate officials as executives and strengthening external review of executive candidate recommendation bodies could reduce the federation’s influence over NH Financial.
The federation has long faced criticism that it effectively exercises decisive influence over appointments of the NH Financial Group chairman and heads of subsidiaries. Tensions between the federation and the financial holding company once surfaced when Yoo Chan-hyung, former vice chairman of the federation with no experience in the securities industry, was placed on the shortlist for CEO of NH Investment & Securities following a federation recommendation.
Hyun Jung-hwan, professor of international trade at Dongguk University, said, “The current core of the reform is improving the governance structure of the federation through direct elections by members, but mechanisms to increase the autonomy of the financial holding company will also gradually be established.”
If NH Financial secures greater autonomy, expectations are that the group’s competitiveness could strengthen further. In the past, NH Financial Group chairmen and NH Bank presidents often failed to win reappointment despite solid performance because their terms coincided with changes in federation leadership.
A banking industry official said, “The government has pointed out that financial holding company chairmen and bank CEOs can form ‘inner circles’ through consecutive terms, but in the case of NH Financial, there have instead been many cases ending after a single term, raising concerns about the lack of continuity in mid- to long-term projects.”
“If autonomy increases, such concerns could be resolved to a considerable extent,” the official said.
Reform of the economic holding company could also reduce the burden on NH Financial. Last year, NH Financial paid 650.3 billion won in agricultural support business expenses, which function as a kind of fee for using the NongHyup brand. That was more than 20 times the 30.9 billion won paid by the economic holding company. This has fueled criticism that the prolonged weakness of the economic holding company has increased the financial burden on NH Financial, including dividends to the federation.
The innovation recommendations call for unifying the guidance and support functions of economic businesses, currently divided between the federation and the economic holding company, under the federation. In the short term, they recommend closing the regional headquarters of the economic holding company and transferring regional support functions to the federation’s regional headquarters.
The recommendations also include promoting mergers to increase the scale of cooperative businesses, digitizing production and distribution facilities in farming regions, expanding agricultural work outsourcing services, and revitalizing online wholesale markets and local food direct stores.
Can 1 Trillion Won in Capital Help Secure Fourth Place?
NH Financial Group also has a strong opportunity to secure fourth place among banking financial holding companies. Its first-quarter net profit reached 868.8 billion won, supported by strong securities earnings amid an active capital market. That was far above the 603.8 billion won in net profit posted by Woori Financial Group, the existing No. 4 player.
Woori Financial faces the task of suppressing growth in risk-weighted assets as it expands securities and life insurance affiliates. Woori Investment & Securities is expected to receive a capital increase of about 1 trillion won from the holding company soon, but many believe it is still not enough to catch up with NH Investment & Securities, which has solid foundations in both retail and investment banking.
NH Financial is also set to receive about 1.1 trillion won in capital from the federation. The funds are expected to be reinvested in NH Bank and NH Investment & Securities in line with the government’s push for productive finance, and used as a foundation for expanding corporate loans and boosting venture capital investment.
A financial industry official said, “Last year, NH Bank could not aggressively expand corporate lending because NH Financial’s capital adequacy was lower than that of competitors.”
“If the federation’s investment in the holding company is linked again to investment in the bank, NH Bank is likely to expand lending centered on its strength in the agri-food sector,” the official said.
- This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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