Deregulation for Internet Banks
The Korean government said on May 15 that it was discussing ways with the National Assembly to assist in the growth of internet banks or direct banks by, for example, allowing industrial capital to have more shares in banks.
During his election campaign, South Korea’s new President Moon Jae-in said that direct banks can be launched even without any change in law. He also promised that he would allow candidates qualified under the current law to launch direct banks. Under the circumstances, it was predicted that the current separation between banking and commerce would be maintained.
From now on, however, the talks to lower the barrier between banking and commerce are likely to be led by the National Assembly with the government not raising an objection. “At least some deregulation is the basic stance of the government when it comes to matters related to the fourth industrial revolution,” said one of his aides who drew up his list of campaign promises with him, adding, “The National Assembly is discussing the necessity of closer links between banking and commerce and it is a matter to be determined next month by not the government but the National Assembly.”
If the current separation between the two is maintained, K-Bank and Kakao Bank cannot be in normal operation. K-Bank opened last month and Kakao Bank is planned to be opened next month. Direct banks, which are subject to Basel I capital requirements, are required to have a capital adequacy ratio of at least 8%. The ratio falls once loans are increased, and an increase in capital is needed in this case. At present, industrial capital cannot have more than 10% of shares and more than 4% of voting rights in banks. If the current separation is maintained, KT and Kakao cannot acquire additional shares in the two banks, and then an increase in capital is impossible.
The National Assembly is discussing ways to block large corporations from setting up direct banks, too. According to a bill tabled by The Minjoo Party lawmaker Jung Jae-ho and People’s Party lawmaker Kim Kwan-young, ICT firms are to be allowed to have up to 34% of direct bank shares with groups subject to cross-shareholding restrictions such as Samsung Group and Hyundai Motor Group not allowed to have such shares. “This bill is a kind of safeguard to prevent large corporations from having their own way,” the government explained, continuing, “Direct banks are expected to lead to positive effects such as a rise in the deposit rates of existing banks stimulated in a new competition environment.”