"It's not the best plan but the only realistic choice," Lee Soo-kil, who is also the bank's deputy president, told Reuters in an interview. "Consolidating under a holding firm is an efficient way to enhance global competitiveness as well as save future costs, reduce funding costs and raise market share," he said.

Lee's response came a day after the top economic policy-makers decided to head the restructuring of state-controlled banks and floated the idea of merging Hanvit, Chohung Bank and Korea Exchange Bank (KEB).

The government is the biggest shareholder in the three banks, holding 80.05 percent in Chohung, 74.5 percent in Hanvit and 32.2 percent in KEB, whose second-largest shareholder is Germany's Commerzbank AG with 31.6 percent.The CFO said he believed the best plan would be one thatcan prevent layoffs, but sacrifices needed to be made.

Hanvit Bank, which has the most extensive nationwide network of branches among Korean commercial banks, itself is a result of a merger of the Commercial Bank of Korea and Hanil Bank in January 1999.

A merger between the three would create the country's largest bank with some 200 trillion won ($180 billion) in assets - 34 percent of the total assets held by Korean banks, Lee said.

"The merger would prompt other banks to follow suit in order to stay competitive," Lee said.

Financial authorities have advocated consolidation of the overcrowded, unprofitable banking sector as a key element in its campaign to reform the financial sector following the 1997 crisis.

To help promote mergers, the government will submit a bill that would allow establishment of financial holding companies to the National Assembly as soon as possible.

The government also plans to give incentives to merged banks, including priority in moving into new businesses and said it would purchase subordinated bonds issued by the banks to boost their capital bases."Korea has too many banks compared with the size of the market, and the competition is too fierce," the CFO said.

"The net interest margin of local banks stands at below two percent while the margin in the United States is twice that," he said.

Interest margin, the difference between average lending and deposit rates, determines interest income for banks, which makes up a large portion of banks' earnings.

Lee said the problem with merging the three banks was the lack of any synergy effect.

"The three banks have a similar colour. They all concentrate on corporate banking," he said.

However, Lee said the problem may be overcome by improving the retail side as all three banks already have strong retail customer bases. "Under the holding company, the three banks can specialise by having Hanvit focus on corporate banking, Chohung on retail and KEB on international financing and investment banking," he said.

Hanvit Bank shares rose 345 won to 3,000 in late Thursday trading, KEB was up 255 won to 3,120 and Chohung up 350 to 4,120. All three shares closed at their upper limits on Wednesday on the merger talk.