Concerns over Arbitrary Application
The National Policy Committee of the National Assembly of South Korea passed a bill on direct bank establishment and management on September 19. The bill is expected to be passed at a plenary session scheduled for September 20, and then President Moon Jae-in’s request for financial innovation based on relaxation of banking-commerce separation will begin to bear fruit.
After the passage of the bill, the financial authorities are going to assess the degree of competition in the banking sector until October and receive applications for the establishment of the third direct bank in the country.
Some experts point out that the bill’s deregulatory effect is rather limited in that a lot of large corporations have been ruled out and the third Internet-only bank is not allowed to give a loan to such corporations.
According to the bill, industrial capital can own up to 34% of a direct bank but this is not applied to business groups subject to cross-shareholding restrictions and having individual owners. This means most large affiliates of chaebol groups, including SK Telecom, which is a unit of SK Group, cannot hold a large stake in a direct bank unlike the so-called ownerless companies such as POSCO and KT. SK Telecom has worked on engaging in a new business combining telecom and finance since as early as the early 2000s.
The National Assembly already prepared an exceptional clause to avoid criticism that the new bank may be undercapitalized. According to the bill, a large company owned by an individual is allowed to own up to 34% of a direct bank if its information and communications technology-related asset ratio is 50% or more. This means Kakao, which owns Kakao Bank, does not have to sell its shares in the future even after exceeding 10 trillion won in asset as most of its assets are in the ICT business. Naver, which is expected to become a new direct bank owner, benefits from the exceptional clause, too. In addition, SK Telecom’s business in the industry may become possible depending on how its assets will be defined down the road.
Still, direct bank establishment by a large corporation like SK Telecom and Samsung SDS is likely to face opposition from civic organizations, and then the financial authorities will have to interpret the law in the most conservative way and block large ICT capital. “Companies such as Samsung SDS have a high ICT asset ratio and the question remains whether the government will accept applications from such companies,” said a local banker, adding, “In short, the new law is incomplete because it can be arbitrarily applied by the government.”
Another criticism is that the new direct bank may appear as a subsidiary of an existing bank with Shinhan Bank, Hana Bank and NH Bank currently considering entering the direct bank industry. The limited credit offering to large companies is being criticized as well. The new bank cannot do marketing activities by means of CPs and debentures, which means the bank is less likely to stimulate existing banks.