South Korea is to allow new domestic players to enter its banking industry for the first time in 30 years, a move meant to boost competition in a sector dominated by five major lenders.
The country’s financial regulator would allow financial firms to apply for nationwide commercial bank licenses, the South Korean Financial Services Commission (FSC) said in a statement yesterday, the first time it is doing so since 1992. The move is seen paving the way for competition that could help lower interest rate costs for consumers.
Lenders made record profits during the COVID-19 pandemic and “paid their interest income as bonuses and dividends for employees and shareholders rather than returning it to citizens,” the FSC said in the statement.
Daegu Bank, a regional banking unit of DGB Financial Group Inc, might become the first firm to take advantage of the expanded rule, with an eye to transforming into a nationwide bank, it said.
The government’s move came after South Korean President Yoon Suk-yeol earlier this year criticized banks for having a “money feast”: booking “easy” profits from the gap between interest rates on deposits and loans, while rewarding their executives with big bonuses as borrowers struggled to pay high interest rates.
Since then, financial regulators launched a task force and the country’s antitrust watchdog probed major lenders to assess whether they colluded on loan rates.
The top five South Korean lenders — Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank and NongHyup Bank — account for about 63 percent of the country’s total 4,115 trillion won (US$3.16 trillion) in bank assets and about three-quarters of deposits, the FSC said.
The lenders posted a combined 12.7 trillion won in net income last year, surging about 18 percent from the prior year. They handed out 2 trillion won in bonuses to employees last year, it said.
Despite the removal of one major hurdle, smaller firms still face an uphill battle entering an industry dominated by giant competitors, SK Securities Co analyst Seol Yong-jin said.
“Even though regional banks can get nationwide commercial banking licenses, whether they can get nationwide clients is a different issue — I doubt it,” Seol said by telephone.
South Korean banks are not alone in facing criticism for excessive profits during a time of surging inflation and high costs for consumers. British lawmakers have criticized the largest banks for offering stingy savings rates to customers. US President Joe Biden has also called out banks for charging excessive fees.
In South Korea, the FSC said it would also allow more online-only banks and ease the loan-to-deposit rules for foreign banks’ local branches.
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