South Korea Opens up to New Banks
(5 July 2023 - South Korea) For the first time in 30 years, South Korea will allow new entrants to the banking sector as the government seeks to spur competition.
President Yoon Suk Yeol earlier this year accused the country’s banks of enjoying a “feast” of bonuses, adding that the sector made “easy” profits at the public’s expense through a rate gap between deposits and loans.
The government will allow more online banks, permit commercial banking licenses for existing financial companies and ease the loan-to-deposit rules for local branches of foreign banks, the Financial Services Commission said on Wednesday. The measures come into effect immediately.
“We will boost competition in various aspects as our banking industry has made easy money amid a lack of competition,” said FSC chair Kim Joo-hyun. “The public perception is that the industry has not made enough effort to become global financial players suitable for the country’s economic standing.”
South Korea’s banking sector has been dominated by five lenders - Shinhan Bank, Kookmin Bank, Hana Bank, Woori Bank and NongHyup Bank.
Daegu Bank, a regional banking unit of DGB Financial Group, is expected to become the first beneficiary of the new rules. It plans to apply for a licence to become a nationwide lender, according to the FSC.
Critics said the latest measures were not enough to increase competition in the sector.
In South Korea, chaebol — family-controlled conglomerates such as Samsung and Hyundai — are banned from entering the banking sector on fears they could use their banking affiliates to illegally fund business expansion or enrich their major shareholders.
South Korean banks are not allowed to engage in investment banking and asset management, making them reliant on interest income.
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