FSS chief urges review of holding companies

Financial Supervisory Service Governor Choi Soo-hyun proposed yesterday that the financial regulator and financial holding companies create a task force to discuss measures to improve their operational conditions.

“There is an overall evaluation that financial holding companies are not making sufficient business outcomes corresponding to the volume of assets that have expanded [over time],” Choi said yesterday. “I’m thinking of financial holding companies forming a joint task force with the FSS to discuss opinions on the current conditions of operational difficulties.”

Choi’s comments were made yesterday at a meeting with chairmen of the country’s seven financial groups including Lee Soon-woo of Woori, Lim Young-rok of KB and Yim Jong-yong of NH Nonghyup at the Korea Federation of Banks headquarters in Myeong-dong, central Seoul.

“It’s been more than 12 years since Korea adopted the financial holding company system in November 2000 and the share of total assets they hold in the domestic financial industry has jumped from 12 percent in late 2001 to 57 percent in 2012,” Choi said. “However, their businesses are not corresponding to their growing assets.”

He noted that the task force should help devise measures to boost their businesses more efficiently. Concerns have grown as banks’ profitability have worsened. According to FSS data, in the first quarter this year, banks’ net profit was 1.8 trillion won, down 44.9 percent from the previous year’s 3.3 trillion won.

While the task force will discuss ways to improve the profitability of financial institutions and devise new strategies for them to grow, an FSS official said the team would be formed next month at the earliest.

“We’re currently considering how we should form the task force,” said the FSS official. “Though details haven’t been decided, the team will be formed as soon as possible in August or September.”

Yesterday’s meeting was held at a time when financial holding companies have been faced with growing challenges in finding new sources of profit amid the low interest rate trend and sluggish economy. Also, lingering uncertainty in the financial environment at home and abroad has caused financial institutions concern over falling profits.

Choi urged financial chiefs to devise preemptive countermeasures to preserve financial soundness and enhance risk management. He also said financial groups should find new ways of growth at a time when they are faced with mounting challenges in a changing environment.

“Financial groups are required to break away from conventional management style and innovate,” he said, adding that the compensation system for executives should be reexamined and that compensation should be based on performance.

Lately, financial institutions have been under fire because their executives reportedly received higher annual salaries last year despite falling profits. The FSS said last month it would look into the performance-based compensation system in the financial industry.

“Financial groups should also put their priority on raising productivity and efficiency, for example, by closing down money-losing branches,” he said.

BY LEE EUN-JOO [angie@joongang.co.kr]