Anticipation is growing for the nation’s third internet-only bank as the authorities move to clear away hurdles affecting nonbanking institutions, including limits on ownership, following positive remarks from South Korea’s top financial regulator last week.
Choi Jong-ku, chairman of Korea’s financial regulatory body, the Financial Services Commission, mapped out a plan to help the new digital banks to move in tandem with the changing environment in the financial industry landscape, toward greater innovation.
“If applications for founding online-only banks are accepted by February or March next year, the preliminary approval(s) will be granted (for the) third or fourth internet-only bank by April or May the same year,” Choi said Friday during a media conference.
FSC Chairman Choi Jong-ku (FSC)
This announcement came after the National Assembly on Sept. 20 approved a presidential decree that would allow a nonbanking entity to own up to 34 percent of shares in banking firms that operate without physical branches. Before the decree, such an entity was allowed to own no more than 4 percent of common shares, or 10 percent of shares with or without voting rights. Of 191 lawmakers present, 145 were in favor.
“(The decree) should not end up simply adding a couple of online-only banks,” Choi said.
Korea has two internet-only banks that operate without brick-and-mortar branch networks: K bank and Kakao Bank. They both launched last year, K bank in April and Kakao Bank in July.
The limits on private ownership of online-only banks, as stipulated in the Banking Act, posed an obstacle that made it difficult for this type of bank to increase capital and disincentivized the establishment of new ones.
For example, the regulations triggered disagreements among K bank’s 20 shareholders on whether to buy newly issued common stocks, causing a series of failures that inhibited the bank from increasing its capital. Because the de facto major shareholder in the nation’s first digital bank, telecommunications company KT, could not own more than 10 percent of its holdings, dozens of potential shareholders had to be invited to take part in its founding.
Some hawkish lawmakers within the ruling Democratic Party, for their part, criticized the move to weaken the Banking Act, citing concerns that banking institutions might be turned into “the private vaults of Korean conglomerates.”
The new decree gained the parliamentary green light without a proposed provision, which would have prevented large Korean business groups with over 10 trillion won ($9 billion) in assets from becoming shareholders. However, the Financial Services Commission will decide whether to exclude them when it finalizes shareholder eligibility requirements before the degree goes into effect three months after gaining approval in the National Assembly.
FSC chief Choi downplayed the possibility of conglomerates’ entry into the online-only banking business, saying that new articles would be written in to prevent abuses. But activist groups, including People’s Solidarity for Participatory Democracy, called on President Moon Jae-in to veto the decree, citing lingering concerns.
Choi on Friday said no talks with business entities had taken place regarding the new business area. But prior to his remarks, executives of firms such as e-commerce company Interpark and online-only brokerage house Kiwoom Securities had reportedly expressed their intentions of joining the new business area by forming a consortium. Commercial banks such as Shinhan Bank and NongHyup Bank also expressed their willingness to jump in.
By Son Ji-hyoung