[News in focus] Gov’t searches for a way to deregulate internet-only banks

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[News in focus] Gov’t searches for a way to deregulate internet-only banks


K bank, the country’s first internet-only bank, had to suspend its two major loan products earlier this month due to a lack of capital to use as a source of lending. It wasn’t the first time the bank has been forced to disrupt services.

The dearth of funding, many say, stems from a regulation that bans non-financial companies from holding a stake of more than 10 percent in a banking unit.

Because of this regulation, the bank’s lead investor and telecom operator, KT, is not allowed to increase its stake from the current 10 percent.

The banking act has long stood in the way of tech companies interested in financial businesses, but its impact may soon be softened following President Moon Jae-in’s remarks supporting the lifting of the regulation.

The regulation dates back to 1982, when the government attempted to prevent banks from being exploited as the personal piggy banks of chaebol-owner families.

“Separation of industry and finance is a basic rule. But if it hinders the growth of new businesses, we need a new approach,” Moon said on Aug. 7 during an event at Seoul City Hall in central Seoul to promote deregulation for internet-only banks.

“When it comes to internet-only banks, IT companies should be allowed to invest their resources and funding,” Moon said.

The comments have acted as a catalyst, forcing policymakers and the financial regulator to quickly launch discussions to discuss deregulation.

Policy chiefs from the three main parties - the ruling Democratic Party, the main opposition Liberty Korea Party and the opposition Bareunmirae Party - tentatively agreed to pass a bill this month that could lift the ownership limit to 34 percent for the investors of online banks.

Currently, a non-financial company can hold shares worth up to 10 percent of a company, but can only vote with 4 percent of them.

Moon reaffirmed his willingness to fix the banking act on Thursday, saying that the bill aimed at easing the ownership regulation should be passed.

Choi Jong-ku, head of the Financial Services Commission, has also called on lawmakers to pass the bill.

If passed, K bank will not alone in benefiting from the deregulation. Kakao Bank, the other internet-only bank, will likely receive a more efficient capital hike from Kakao, operator of mobile messenger KakaoTalk, which holds a 10 percent stake in Kakao Bank.

Fundraising has always been a major priority for Kakao Bank because the company finds it hard to pump capital to keep pace with the rapidly increasing number of clients.

Yoon Ho-young, co-CEO of Kakao Bank, also raised the need to relax the regulation to better enter and invest in new financial services.

“The problem should be solved,” he said. “The easing of the regulation could foster innovation and more innovative products and services.”

Ahn Jae-min, an analyst at NH Investment & Securities, said that the relaxation could directly help Kakao Bank dip into new services, such as launching credit cards.

“The introduction of the new bill is not that closely linked with the increase in users,” he said. “But it could help [the bank] enter diverse business segments including credit card businesses and mortgage loans.”

As much as the industry is eager to see deregulation take place, some lawmakers with a tough stance on conglomerates have a more cautious view.

Some Democratic Party members including Rep. Je Youn-kyung canceled their visit to Seoul City Hall on Aug. 7 where Moon outlined his willingness to advocate the relaxed ownership rule.

Rep. Park Young-sun of the ruling Democratic Party has also publicly said that the new limit of 34 percent is too generous and should be lowered.

Park brought in a new bill on Aug. 10 that allows for a 25 percent stake for non-financial companies to invest in internet-only banks.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]

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