Local banks and brokerage firms are rushing to attract more customers ahead of a new regulation that would allow the entry of a new savings product entailing bigger tax benefits, industry sources said Tuesday. 

Starting from March 14, lenders and securities companies will be able to introduce the tax-exempt Individual Savings Account.

With the ISA, users can manage a broad range of financial products including cash deposits, funds and stock investment accounts, from a single account.

The government will offer tax exemptions of up to 2 million won ($1,650) on profits made from the ISA system as a part of its reforms for boosting household wealth.

Over the weekend, the competition between banks and brokerage houses for attracting more ISA customers entered a new phase after the Financial Services Commission said that with the introduction of ISA it would lift the regulation that has prevented banks from making investment decisions on behalf of their clients.

This means consumers can choose to give banks or securities firms discretion to make previously banned investment decisions, thereby creating more business opportunities. 

“With the FSC’s recent decision, banks are now in a rush to train employees and review related laws and internal rules,” an official at a commercial bank said.

For local lenders that have been plagued by slow economic growth and low interest rates, ISA is expected to become a new source of revenue.

The ISA market in Korea may reach up to 409 trillion won, accounting for 13.8 percent of the outstanding amount of financial assets held by domestic households, according to the investment industry.

“Banks will have the upper hand on the new system, as they have much broader branch networks than securities firms, but brokerages also have a competitive edge in operating products that need specialized skills such as global portfolio investment and equity-linked securities,” Seo Bo-il, an analyst at Eugene Investment and Securities, said. 

Financial institutions are also offering free gifts and cash prizes to initial ISA customers in a bid to gain a better foothold in the market as a customer are allowed to create one ISA account only.

NH Investment & Securities is offering an opportunity for early birds to sign up for repurchase agreements with a 3.5 percent interest rate, while Hana Financial Investment offers 4 percent interest rate on repurchase agreements. These high-yield repurchase agreements reach maturity within three months.

Nonghyup Bank will give customers, who sign up for an ISA, a chance to enter into a prize raffle to win a gold bar worth 2 million won from next week while Woori Bank will offer a free travel coupon to Hawaii.

By Park Han-na (hnpark@heraldcorp.com)