The comeback of former Finance Minister Kang Man-soo as the new chief of a state bank is likely to rekindle debate over creating so-called mega financial firms and swirl the banking sector in a wave of takeovers, market watchers said Sunday.

South Korea's financial watchdog last week recommended Kang Man-soo, a close confidant of President Lee Myung-bak, as new chairman of the state-run KDB Financial Group, which controls Korea Development Bank (KDB). Kang, who is currently a special economic aide to the president, served as the finance minister between 2008-2009.

Market watchers said as Kang, an advocate of creating gigantic financial firms, is set to take the helm of KDB Financial Group, which the government is seeking to privatize, a sea change in the local banking sector would be inevitable.

"The nomination of Kang could be seen as a trigger for bringing about a 'big bang' in the local banking sector," said a senior official at a local banking group. "He is likely to push for purchasing a bank."

The idea of combining three state-owned financial institutions-- KDB, Woori Finance Holdings Co. and the Industrial Bank of Korea(IBK) -- first came up in early 2008 as a way of privatizing them.

But the government ditched the plan as the sharp brunt of the global financial storm made it impossible for the government to pursue a bank sale.

Kang's appointment is expected to accelerate the process of selling KDB Financial Group, and some market watchers are raising speculation that KDB Financial may try to buy Woori Finance, whose sale has been suspended since December.

Kim Seok-dong, chairman of the regulatory Financial Services Commission, also lent credence to the prospects that the privatization of KDB Financial will gain momentum.

"I will entirely settle the privatization of KDB Financial Group while I'm in office," Kim told reporters after announcing the recommendation. "Kang is the right person to complete the plan."

Under a privatization blueprint, the government, which owns 100 percent of KDB Financial Group, should start to reduce its stake in the group no later than May 2014. But speculation has been growing that suspension of the much-anticipated sale of state-owned Woori Finance is likely to delay privatization of KDB Financial.

KDB Financial's total assets stood at around 160 trillion won (US$142.4 billion) and Woori Finance held 326 trillion won in assets.

But some experts voiced concerns about forming gigantic financial firms as such a plan largely goes against the global trend of putting stricter regulations on bank growth and labor unions in the banking industry are vehemently opposed to it.

(Yonhap News)