INVESTMENT BANKING | Staff Reporter, Korea

Unlicensed investment banks cash in on Korea's bond issuance spree

They earn more than $17.6m in fee income annually without being required to pay taxes.

Authorities in South Korea remain vigilant on unlicensed foreign investment banks (IBs) that are earning millions in fee income from domestic firms seeking to issue foreign currency bonds, reports Korea Times.

"These foreign IBs are allowed to engage in financial businesses if they submit the required papers with the Financial Services Commission (FSC) beforehand. It's basically issuing bonds outside the border, not in Korea. It's impossible for us to tax them since they are headquartered abroad," a source from FSC told Korea Times.

Investment banks earn more than $17.6m (KRW20b) in fee income every year by helping domestic firms issue foreign currency bonds. However, these banks are not subject to local taxes as they usually operate out of Hong Kong and Singapore

According to the Korea Center for International Finance, domestic firms are expected to issue a total of $37b (KRW41.6t) worth of foreign currency bonds in 2019, which is the highest figure since 2012. Foreign investment banks are expected to cash in from this issuance spree with expectations that fee income could hit KRW20.2b in 2019.

Germany’s Commerzbank and Mitsubishi UFJ Financial Group are so far the leading players in helping Korean firms to issue their foreign currency bonds.

Data from the Korea Financial Investment Association revealed that there are 22 foreign IBs snapped their licenses from the government for their financial businesses in Korea as of end 2018. 

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