FSC chair says bank regulations need a review

The top financial policymaker has raised the need to change a law that limits nonfinancial companies from investing in banks in order to boost Korea’s internet banking industry.

“We have reached the time to review the way we apply the principle of the regulations separating banks from nonbanking industries,” Choi Jong-ku, Financial Services Commission chairman, said at a forum on internet banking at the National Assembly on Wednesday. “While we need to adhere to the basic principles of the financial industries, there’s a need to discuss changing the regulations on internet banks to an international level.”

The FSC chairman said that internet banks are an inevitable part of the fourth industrial revolution and an industry that Koreans could excel in.

Choi added that there is a need to find an approach to internet banking that is both productive and contributes to development.

“Internet banks are not simply banks but also play the role of pioneers of fintech, which provides new financial services that are based on ICT technologies such as easy wiring and 24 hour transactions,” Choi said. “It is expanding the boundaries of fintech through cooperation among different fintech companies and converging with new technologies.”

Choi said that in order to boost the internet banking industry there’s a need to ease regulations that have prevented non-financial companies from holding stakes in banks.

“Today the ways companies secure investment have become diverse and the oversight of conglomerates socially and systematically has strengthened while financial authorities’ regulations have become more sophisticated,” Choi said. “Society and the economy have become mature enough to accept the changes that have taken place since the regulation separating banks from nonbanking industries was first adopted.”

Korea saw its first internet bank, K bank, open in April last year. It was joined by Kakao Bank three months later.

The internet banks were expected to revolutionize the banking industry by widening the options for consumers while sparking competition even with existing banks, which it was thought would lead to improved services and diversity of financial products.

However, despite an initial success, the limits on investment from shareholders caused by the regulations resulted in banks failing to properly provide the financial services that it had promised, leading to poor performances.

K bank reported a net loss of 83.8 billion won last year and a further 18.8 billion won in the first quarter this year.

Kakao Bank reported a net loss of 104.5 billion won last year and in the first three months of this year suffered a net loss of 5.3 billion won.

Under the current law, nonfinancial companies are limited to owning a stake no larger than 10 percent in banks and less than 4 percent on voting rights.

The law was designed to prevent conglomerates from owning banks and using them as their personal piggy banks, such as borrowing a large amount of unsecured loans for relatively lower interest rates or using the money that has been deposited by customers for unrelated business.

Recently there have been growing demands that the regulations should allow IT companies that are the largest stakeholders of internet banks to increase their stakes in the company to provide more capital so that internet banks can commit to their businesses, including through loans.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]