Not Attractive
Even though the Korean government is calling for increasing the competitiveness of the financial market, 20 foreign financial companies left Korea over the past four years. In addition to a drop in profitability due to the prolonged low interest rate, analysis says that strong financial regulations, rigid labor environments and a financial environment represented by state control are causing them to leave Korea.
According to a report of the Financial Supervisory Service (FSS) on foreign financial institutions’ withdrawal from Korea over the past four years by), 20 foreign financial institutions left Korea from 2014 to the first half of this year. They were banks, securities and investment advisory, insurance, and credit finance companies among others, spanning the whole gamut of the financial industry. Many of them were companies from developed countries such as the US and Europe. Major foreign banks, such as Citibank Korea and SC First Bank are also shrinking their domestic networks by reducing their retail banking personnel and branches although they did not fully withdraw from Korea.
They blamed it on the prolonged low interest rate and tough regulations. "British and American banks had raised funds with low interest rates, investing them in Korea and earning profits. But these days, Korea's interest rate is so low that such a profit model does not work," The profit-making base weakened, but competition became more and more intense, making it difficult to generate profits.
They also pointed the finger at Korea’s regulation and sanctions-oriented financial policies. Not only does Korea apply more regulations to foreign financial companies than other countries but the regulations are tougher than those of foreign countries. Foreign financial firms complain that they deadlock every time they try to do new business because Korea is more interested in financial market stabilization and personal information protection rather than fostering the financial industry. Stringent capital and IT requirements make it difficult for foreign companies to make a foray into the Korean market. Even after entering the Korean market, they have trouble doing business due to regulations that force banks, securities companies, and insurance companies to do their own business only and regulations such as discriminatory taxation on overseas stocks and funds.
"If a financial accident occurs, only those who caused the accident is picked and punished in foreign countries, but Korea takes stronger control of the business itself. This can cause foreign financial companies to close down their business in a day,” said a senior financial official in the financial industry, expressing his concern about strong regulations in Korea. It is also said that pressures of the government’s control such as a rigid labor environment and the regularization of irregular workers are another element to lower the attractiveness of the Korean market.