The bill on banking-commerce separation deregulation and establishment of direct banks has failed to pass the National Assembly despite President Moon Jae-in’s instruction.
As a result, the launching of the third direct bank in South Korea within this year, a goal pushed by the local financial authorities, has become unlikely along with the two existing direct banks’ planned business expansion and recapitalization.
Ruling and opposition parties agreed on the need to ease the banking-commerce separation and reached a consensus on adjusting the industrial capital's shareholding ceiling in direct banks from 10% to 34%. However, they failed to reach an agreement on specific objects of the deregulation.
The ruling party claimed that the objects should be ICT-based companies with up to 10 trillion won (US$9 billion) in assets whereas opposition parties were opposed to the exception, saying that non-ICT industrial conglomerates should also be allowed to become a major direct bank shareholder if they pass the Financial Services Commission’s qualification test and comply with an enforcement decree.
The authorities are planning to keep going ahead with the bill in spite of the failure to pass the bill through the National Assembly in this month’s extraordinary session. Still, companies’ interest in the third direct bank is likely to decrease for a while. It was previously said that SK Telecom, Interpark, NH Bank and Shinhan Bank were interested in investing in the planned bank.
K-Bank, in the meantime, fell into trouble with its recapitalization plan thwarted by the delayed legislation. At its paid-in capital increase last month, the bank met only 20% of its goal, procuring merely 30 billion won (US$27 million). Three major shareholders, that is, KT, Woori Bank and NH Investment & Securities temporarily dealt with the underperformance by bearing convertible stocks without voting rights.
Kakao was planning to expand the business of Kakao Bank by linking the bank with its services like Kakao Talk and Kakao Pay once it becomes the largest shareholder in the direct bank. Kakao acquired all of the shares forfeited by largest shareholder Korea Investment Holdings, 58%, in April this year and was planning to become the largest shareholder through preferred-to-common conversion and so on, which is now less likely.