South Korea allows new bank entrants for the first time in 30 years

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South Korea will allow new entrants into the banking sector for the first time in 30 years in a bid to boost competition after the government drew criticism for large bonuses paid to banking workers as interest rates rose.

Earlier this year, President Yoon Suk Yeol accused the country’s banks of enjoying a “feast” of bonuses, and said the sector made “easy” profits at the public’s expense through the rate difference between deposits and loans. earned.

The Financial Services Commission on Wednesday said the government will allow more online banks, allow commercial banking licenses for existing financial companies and ease loan-to-deposit rules for local branches of foreign banks. The measures come into force with immediate effect.

“We will promote competition in various aspects as our banking industry has made easy money amid the lack of competition,” said FSC Governor Kim Ju-hyun. “The public perception is that the industry has not done enough to become a global financial player appropriate to the country’s economic situation.”

South Korea’s banking sector has been dominated by five lenders. The country’s banking sub-index fell 0.93 per cent on Wednesday afternoon on expectations of higher competition.

Daegu Bank, the regional banking arm of DGB Financial Group, is expected to be the first beneficiary of the new rules. According to the FSC, it plans to apply for a license to become a nationwide lender.

“The oligarchy of the banking sector has caused significant damage,” Yoon told a meeting of economic ministers in February, as he called on financial regulators to take measures to ease the cost-of-living pressure on the country’s banks.

“The public is feeling immense pressure because of the high interest rates of banks,” Yoon told officials at a separate meeting this year.

The Bank of Korea raised its benchmark interest rate from 1 percent to 3.25 percent during the past year. With the base rate currently at 3.5 percent, analysts expect the crime rate to rise in the second half of this year as the country’s economy slows.

The combined net profit of South Korea’s five biggest financial groups – Shinhan Bank, Kookmin Bank, Hana Bank, Woori Bank and Nonghyup Bank – was expected to hit 12.7tn ($9.8bn) in 2022, up nearly 18 percent from the previous year.

Critics said the latest measures were not enough to boost competition in the sector.

“It is not fair to blame banks for generous bonus payments made with huge profits that are legal,” said Hwang Sei-woon, a researcher at the Korea Capital Market Institute. “Such excessive verbal interference only adds to the uncertainties in the business environment of the sector.”

He added that new entrants would find it difficult to become serious competition to existing players.

“It is difficult to shake up the current market dynamics without easing regulations on business segments divided between banks, brokerages and asset managers,” Hwang said.

in South Korea, chaebol Family-controlled conglomerates – such as Samsung and Hyundai – have been banned from entering the banking sector for fear that they could use their banking affiliates to illegally fund business expansion or enrich their major shareholders. Can

South Korean banks are not allowed to engage in investment banking and asset management, making them dependent on interest income.