Domestic disadvantageKim Yong-duk, the head of the Financial Supervisory Commission, reiterated yesterday that he has no intention of softening the principle of blocking control of financial firms by non-financial commercial industries, including conglomerates. That remark contradicts the policies pushed by Kim’s predecessor, Yoon Jeung-hyun. Those who support the commerce-finance barrier have a fundamental distrust of industrial capital. They compare allowing ownership of banks by commercial sectors to “giving fish to a cat.” They also describe those who favor softening the rule as “corporate-friendly” and “unethical.”
It is true that when the nation underwent cash shortages in the past, the possibility existed that banks would become personal cash boxes. But the financial environment has changed immensely over time. The debt-to-income ratio of Korean banks now stands at 76 percent, the lowest across the globe, and cash reserves total over 40 trillion won ($42.6 billion). There are ways for companies to borrow money at lower interest rates than from banks, and a number of lenders are available now. This means companies have no reason to appropriate bank cash. Besides, there is a lot of room for the nation’s regulatory watchdog to prevent the private use of banks.
At the same time, the side effects of banning ownership of banks by commercial bodies are aggravating. For Korea’s financial industry to step up its global competitiveness, it needs to amplify capital and acquire overseas financial service firms. But lack of capital is limiting growth.
The size of capital held by the top three Korean banks is one-eighth of that in the United States or Japan and one-fourth of that in China. To improve the situation, the Korean government should enable the flow of capital from the commercial sector to the financial industry. But the rule on restricting non-financial firms from holding more than a 4-percent stake in any financial service firm is blocking the flow.
As a result, foreign investors are free to pioneer in Korea’s financial market, while domestic firms aren’t. Among seven commercial banks, Korea Exchange, Korea First and KorAm Banks had their management rights taken over by foreign investors, and foreign shareholders have more than a 50-percent stake in Kookmin, Shinhan and Hana banks. The nation is not supposed to discriminate against foreign capital from a nationalistic point of view, but discriminating specifically against domestic capital should not take place either.