South Korea set to issue new bank license after 30 Years

The banking sector in South Korea has opened its doors to foreign entities for the first time in 30 years according to the Business Chief.

Financial authorities have granted permission for financial firms to apply for banking licenses, aiming to promote competition in the banking sector and diversify the market, potentially leading to reduced interest rates for consumers.

Currently, South Korea is dominated by five key players in the banking industry: Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank, and NongHyup Bank. The new reform initiative aims to:

Stimulate competition and reshape the industry structure
 Enhance the interest rate system by increasing accessibility to fixed interest rates
 Improve loss-absorbing capacity
 Increase the share of non-interest revenues
 Enhance employee remuneration and shareholder return policies
 Promote corporate social responsibility (CSR)

Over the past four months, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have collaborated with private sector experts, financial industry representatives, and research institutes to develop reform measures targeting six key areas for improving banking management and operational practices. Due to the oligopolistic nature of the banking sector, there is a widespread belief among the public that banks are reluctant to change despite their profitability. Therefore, the primary objective of these reforms is to foster fair and effective competition in the banking sector.

Ensuring fair competition in South Korea requires banks to provide adequate information about their business operations and products, enabling the market to benefit from more equitable competition and empowering consumers to make informed decisions.

By allowing a greater number of players to enter the market, regional banks can expand their business operations nationwide, potentially leading to the establishment of a new national bank for the first time in 30 years.

"This change makes sense as the headquarters of the new national bank may be located in a regional city rather than Seoul. We will issue new banking licenses to those with sufficient capital and viable business plans. The authorities will actively support the entry of new players, including banks operating solely online and other types of specialized banks, if there is demand and their business plans are deemed stable and viable," added Chairman Ju-Hyun of the Financial Services Commission (FSC).

Future plans for South Korea's banking sector will include expanding access to non-bank financial institutions and fintech businesses.

"We will encourage the activities of savings banks through mergers and acquisitions to enhance their competitiveness and strengthen competition in the deposit and lending markets. We will work on strengthening cooperation between finance and information technology to ensure the creation of more innovative products and services based, for example, on the high-tech capabilities of big data analytics firms and financial data of financial companies," stated Chairman Ju-Hyun.

Once the country implements its reforms, improves auxiliary service system regulations, and establishes a competitive market, Chairman Ju-Hyun concludes his speech by expressing his belief that "the financial industry can evolve as a major global player."