The head of Korea’s top financial watchdog criticized the current oligopolistic system dominated by five major commercial lenders, which hinders them from sharpening their global competitiveness.

“If (Korean banks) stay the way they are now, they will likely have a hard time gaining an edge in the global market,” Financial Supervisory Service Chief Lee Bok-hyun said during a meeting with foreign investors in Seoul on Wednesday.

This meeting was organized by the FSS to provide information to foreign investors about the Korean financial watchdog’s supervision directions and also to boost their interest in Korean financial firms. Attendees included leading asset management firms like JP Morgan.

Lee added that the banks' competitiveness in the overseas market is vital, as the domestic market is saturated. The FSS is currently reviewing ways to break the oligopolistic structure.

Lee also condemned the banks enjoying hefty bonuses in 2022, which amounted to a combined 1.38 trillion won ($1.08 billion).

“They have been complacent about the oligopolistic structure, reaping more than 80 percent of their earnings from interest income, and enjoyed the benefit by themselves. I think it is a great cause for concern as it may weaken the growth potential of the sector,” Lee said.

The five major commercial banks -- Shinhan, KB Kookmin, Hana, Woori and NH NongHyup -- account for 60 to 70 percent of the domestic deposit and loan market in Korea.

Lee also talked about excessive government involvement, which is considered one of the factors that has made the Korean market less appealing to foreign investors.

He promised that the financial watchdog will mostly respect local banks’ decisions on their shareholder return policies as long as they have sufficient capital reserves.

The FSS head also noted that he is well aware of the potential risks that can arise from real estate project financing and promised that the financial watchdog will monitor individual businesses more closely.

"We are also encouraging financial firms to secure enough capital against possible losses in order to minimize any shocks from stressful situations on the financial system," he added.

Toward the end of the meeting, he touched on the financial authorities' reform plan announced earlier this year that aims to attract more foreign investors.

The plan includes extending the operating hours of the foreign exchange market and repealing the registration requirement for foreign investors. After the changes take place, foreign investors can also be informed of dividend information before they make investment decisions.

“We also intend to gradually mandate disclosure filings in English for listed companies,” he added.

These revisions are a part of the country's efforts to get its stock market included in the top grade of global market indices. The government has been seeking to get the Korean equity market upgraded to “developed” status from the current “emerging” status by New York-based index provider Morgan Stanley Capital International.