When it comes to national rivalries, few are as intense as that between South Korea and Japan. These two countries tend to slug it out in whatever arena they can find: cars, semiconductors, steel. If one country makes the product, so does the other. The competition is so fierce that the hosting of the World Cup in 2002 had to be split between them in the interests of maintaining global peace. In many aspects of this rivalry, Japan holds the upper hand. But when it comes to the critical issue of sorting out the troubled banking industry, Korea is winning in every way.

Both nations face a severe banking crisis. That's not surprising, since Korea has modeled its banking industry, and indeed its economy, on those of Japan. Banks in both countries have to cope with similar bureaucratic managers, government red tape and big borrowers whose main objective is simply to get bigger. But there is one important difference: Korea's financial crisis is acute, while Japan's is chronic. Bad loans in Korea are up sharply, and the government lacks the financial resources to bail out the banking sector on its own. Korea needs to adopt drastic measures and, as with many things the country sets its mind to, it's doing so with a vengeance. Let's take a look at how this World Cup of bank restructuring is progressing.

In resolving any banking crisis, the first step is usually to cut operating costs by firing staff. In Korea, 21% of all bankers lost their jobs in the first six months of 1998. By contrast, the number of Japanese bankers has fallen by only 6% in the past six years, and this was achieved largely through retirements. Score: Korea 1, Japan 0.

Turning around a bank generally requires a new management team, unburdened by responsibility for past mistakes. In Korea, more than half of bank managers have been sacked in the past year. In Japan, practically all of the old crowd are still around. The most severe punishment ever discussed for a Japanese banker is to (gasp!) have him apologize for making bad loans. Score: Korea 2, Japan 0.

Assessing the size of the bad-loan problem is critical in dealing with it. Korea has aggressively pushed its banks to disclose their problem loans, even those granted to borrowers who are still making payments but have a lot of debt outstanding. Japan is considering introducing a watered-down version of this some time this year. Score: Korea 3, Japan 0.

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