Korea allows formation of new nationwide bank for first time in 30 years

FSC plans to issue new banking licenses to bolster competition.

South Korea is allowing a new nationwide bank to be established for the first time in 30 years.

In a statement, Financial Services Commission (FSC) chairman Kim Joo-hyun said that authorities hope to promote more competition in the market by allowing new players to enter.

“Regional banks will be permitted to expand their business operations throughout the country. For the first time in thirty years, a new nationwide bank can be established. This change is meaningful as the new nationwide bank can have its headquarters not in Seoul but in another regional city,” Kim said in a meeting with bank holding companies on 5 July.

Kim said that the FSC will issue new banking licenses to firms “equipped with sufficient capital and a viable business plan.”

The move is part of a wider move by the FSC and the Financial Supervisory Service (FSS) to reform the management and operating practices of banks. In his speech, Kim noted that the “oligopolistic nature of the banking industry” has led the public to view local banks as reluctant to make changes despite their easy profit-making structure. 

“The main purpose of the reform measures prepared by the taskforce is to promote fair and effective competition in the banking sector—but more importantly, competition driven by market forces,” Kim said.

Amongst reforms include the creation of an online loan transfer system, introduced in May. The FSC and FSS are reportedly working to allow refinancing of home-backed mortgage loans from the online loan transfer system by the end of 2023.

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Kim said that authorities will actively promote entry of new banking players, including internet-only banks and other types of specialized banks if there are demands and their business plans are considered stable and viable. 

More competition
The FSS and FSC will also work to create conditions that will allow a non-bank financial institution and fintech business to compete with banks.

“We will promote savings banks’ M&A activities to bolster their competitiveness and to boost competition in the deposit and loan markets,” Kim was quoted saying, adding that they will also work to strengthen collaboration between finance and information technology to enable creation of more innovative products and services based on, for instance, high-tech data analytics capability of a big data firm and financial input from a financial company.

“Once we have the reform measures on financial holding companies, along with the measures for improving rules on the ancillary service system sought after since last year and the measures to promote competition in the banking industry all set in motion in harmony, I believe that our financial industry can develop as a major player in the world,” Kim said.