Intended to promote competition in the banking sector, South Korea’s financial authorities has opened up its sector to outsider for the first time in 30 years. Allowing financial firms to apply for a banking license for the first time since 1992, is paving the way to lower interest rates for consumers by diversifying the market.
Currently, South Korea is dominated by five key players - Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank and NongHyup Bank - the new reform aims to:
- Promote competition and overhaul the industry structure
- Improve the interest rate system with greater availability of fixed interest rates
- Enhance loss-absorbing capacity
- Increase the proportion of non-interest revenues
- Improve employee remuneration system and the shareholder return policy
- Promote corporate social responsibility (CSR)
“Over the past four months since the end of February, the FSC and the FSS have been preparing reform measures together with private sector experts, financial industry officials and research institutions on the six key task items concerning how to improve the management and operating practices of banks. Due to the oligopolistic nature of the banking industry, there has been a widely held view among the public that banks are reluctant to make changes despite their easy profitmaking structure. Therefore, the main purpose of the reform measures prepared by the taskforce is to promote fair and effective competition in the banking sector,” commented Kim Joo-hyun, Chairman of the Financial Services Commission (FSC).
Bringing about fair competition in South Korea
By requiring banks to provide adequate information about their business operation and products to the market, the sector will benefit form fairer competition and allow consumers to make informed decisions.
Allowing more players to enter the market, regional banks will be able to expand their business operations throughout the country, and for the first time in 30 years, a new nationwide bank can be established.
“This change is meaningful as the new nationwide bank can have its headquarters not in Seoul but in another regional city. We will issue new banking licenses to those equipped with sufficient capital and a viable business plan. Authorities will actively promote entry of new players including internet-only banks and other types of specialised banks if there are demands and their business plans are considered stable and viable,” added Joo-hyun.
Future plans for the banking sector in South Korea will include the extension of inclusion to nonbank financial institutions and fintech businesses.
“We will promote savings banks’ M&A activities to bolster their competitiveness and to boost competition in the deposit and loan markets. We will work to strengthen collaboration between finance and information technology to enable creation of more innovative products and services based on, for instance, high-tech data analytics capability of a big data firm and financial input from a financial company,” said Joo-hyun.
Once the country has reformed its measures, improved its rules on the ancillary service system, and set in motion a competitive market, Joo-hyun concludes his speech with his belief that “[the] financial industry can develop as a major player in the world.”