The Fair Trade Commission ruled on Thursday Hana Financial Group’s takeover of Korea Exchange Bank does not violate competition rules, bringing the nation’s fourth largest banking group a step closer to winning regulatory approval due next Wednesday.

The watchdog notified the Financial Supervisory Commission that the planned purchase does not necessarily reduce competition in the industry as the number of industry participants aren’t expected to change much.

“We determined that the consolidation would not practically limit competition in related markets where 15 bank (after the takeover) rivals compete,” the FTC said. The watchdog conducted a legal review on the request of the financial regulator.

The watchdog’s decision cleared a major requirement needed to win the final regulatory approval for a controlling 51.02 percent stake in the KEB. The KEB’s current owner is Lone Star Funds, a U.S. buyout fund.

“The consolidation, which will make Hana Financial the third biggest bank operator, is forecast to add steam to competition with rivals,” it said.

The watchdog investigated changes expected in seven commercial banks, six regional banks and three other players before concluding that the Hana-KEB deal would not reduce competition in the sector.

If sealed, the deal will result in the reshaping of the country’s financial landscape as the combined entity would be put to the third not far behind the top two banks ― Kookmin and Woori.

Hana Financial needs to be granted the green light from the FSC who will evaluate the reasonability of the transaction terms, future plans and financial health of the consolidated entity. The regulator’s final word is expected on March 16 at its regular meeting.

Lone Star Funds in November agreed to sell its 51.02 percent stake to Hana for 4.67 trillion won ($4.2 billion) after managing the country’s fifth largest lender for eight years.

The fair-competition decision followed Korea Exchange’s nod for Hana to start trading its new shares from a day earlier. The stock operator said it will list and start trading Hana’s new shares starting Thursday, easing funding needs of the bank for the KEB deal.

The FSC said it seeks to finalize the decision on the Hana-KEB case as soon as possible to “prevent market commotion since Lone Star and Hana Financial’s deal has made substantial progress,” a FSC official said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)