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| Financial Services Commission Chairman Choi Jong-ku |
The financial authorities said they will issue internet banking licenses this month. The decision came after an expert group's report claiming the nation's banking industry lacks competition.
According to a report released by the Financial Services Commission's (FSC) expert group, which is made up of 11 financial specialists, there are not enough competitions in Korea's banking sector. The expert group has studied the competitiveness of the nation's banking sector since September.
It said the Herfindahl―Hirschman Index (HHI) of Korea's banking industry was between 1,233 and 1,357.
The HHI is a commonly accepted measure of market concentration, ranging from close to zero to 10,000. The range of 1,233 to 1,357 indicates moderate concentration in competition.
"There is a large gap between Korea's top six banks and the rest. The six banks also occupy similar market share," the report said. "The industry lacks competition under the industry structure."
The nation's banks also received disappointing scores in customer satisfaction.
Bank customers gave only 46.7 points out of 100 in the expert group's survey questioning whether banks compete against each other to improve customer service.
The group recommended financial regulator needs to consider new players' entry into the market to boost competition in the nation's banking sector.
"Small or internet-only banks' entry into the market will help boost competition in the sector rather than conventional banks," the group said.
The FSC said it will issue a license for the nation's third or fourth internet-only bank this month.
There are two internet-only banks that operate without brick-and-mortar branch networks ― K bank and Kakao Bank. The both banks launched last year.
In September, the National Assembly also approved a presidential decree that would allow a nonbanking entity to own up to 34 percent of shares in banking firms that operate without physical branches. Before the decree, such an entity was allowed to own no more than 4 percent of common shares, or 10 percent of shares with or without voting rights.
Lawmakers' move signals a green light for non-banking firms' entry into the nation's banking sector. Prior to the move, e-commerce firm Interpark and online-only brokerage Kiwoom Securities showed in their possible entry into the market.
