Time Ripe for Further Reform in Financial Industry
Vice Chairman of Credit Suisse Asia Pacific
It's an exciting time for Korea. The country finds itself at the crossroads for many of its industries and markets and is very strongly positioned to capture some of the huge opportunities that now lie before it.
As Asia's third largest economy and the 10th largest in the world, Korea and Korean companies have long been very successful at expanding their reach, range of activities and influence both in Asia and globally.
From the appointment of Ban Ki-moon as the United Nations Secretary-General to a growing list of international brand names in consumer electronics, technology and heavy industries, Korea's commitment and determination to upgrade its ``outward-looking'' developed economy image is commendable.
At Credit Suisse we are proud to have played a role in so many of these changes, advising companies, raising financing and assisting in attracting international investment into Korea.
In our view, the future is even brighter. In the financial services sector, Korea is going through many changes that will require quick and appropriate responses from the local financial institutions and the Korean government.
One of the key issues is the globalization of the financial industry. This trend is inevitable as highlighted by the Korea-U.S. Free Trade Agreement signed this year, where Korea will need to deregulate and further open up the financial sector so that both foreign and domestic financial institutions enjoy a level playing field.
These are positive developments and will do much to assist Korea in achieving its own goal of becoming a regional financial center that can compete internationally against other financial markets and institutions.
This combination of ``push'' and ``pull'' factors seem to suggest that time is ripe for further structural changes in Korea's financial industry.
Indeed, the implementation of the Capital Market Consolidation Act (CMCA) in 2009 will integrate financial service functions and ease the ability of banks and brokerages to offer new financial products.
It is hoped that the act will pave the way for a full gamut of capital market services, including more structured products.
Once the act is implemented, I believe that investment banking in particular will become one of the fastest growing domestic industries, and Korean commercial banks in particular look well positioned to benefit.
First, Korean commercial banks already possess some level of competitiveness by international standards following years of restructuring since the Asian financial crisis in 1998.
Second, in a capital-intensive business like banking and investment services, size clearly matters.
Korean banks are mostly well-capitalized, and along with their broad distribution channels, they can make a genuine charge at investment banking activities.
Third, Korean banks also have increasing international exposure, which in turn enables them to offer domestic and international investors access to international products and also gives them a leg up in the fight to become leading investment banks.
They should be encouraged to further build upon their existing strengths, diversify revenue streams, and expand beyond Korea's borders.
Changing Role of State-Owned Banks
Many economies have undergone such a transformation in the financial sector.
Examples in Asia include the Development Bank of Singapore, Bank of Communication in Taiwan, and CIMB and Maybank in Malaysia.
In Europe, Westdeutsche Landesbank of Germany and CDC (Caisse des Depots et Consignations) of France went through similar changes.
In the case of DBS in Singapore, the experience has shown that it is how the state-owned or controlled institution is managed that determines its performance and value and not whether it is publicly or privately owned.
DBS in Singapore was established in 1968 primarily as a development financing institution during Singapore's early days as a republic to help support the establishment of industries. As the economy matured, the role of DBS evolved to be more of a full-service bank. During the consolidation of Singapore's banking sector, DBS acquired POSBank and is now the largest domestic bank. Today, DBS does corporate banking, retail banking, private banking, investment banking, and asset management and has a presence throughout Asia, the U.S., and the U.K. It continues to be majority-owned by a government institution.
Korea state-owned banks are also seeking to transform themselves to adjust to the new market environment.
KEXIM has said that it will expand its international financing operations such as international natural resources development projects.
Korea Development Bank is also building up its already extensive experience in capital markets and investment banking.
These efforts to expand their capabilities beyond their original purpose can be interpreted as the banks seeking to balance out their public and commercial services by strengthening areas where they have a competitive edge.
If these efforts translate into facilitating the development of the local financial sector and the economy, they should be welcomed.
With the globalization of the Korean economy and Korean companies comes increased demand for international financing.
Korean state-owned banks should strengthen their international business and gain international competitiveness.
In this context, I believe KDB is in a very strong position to upgrade the international competitiveness of the Korean financial sector and successfully provide both public and commercial services by leveraging its investment banking experience. It would be to the benefit of the country if KDB, based on its investment banking experience, became a case study for how to successfully transform into a regional if not global full-service financial institution providing financial support for the globalization of Korean industry.
The Korean financial sector is at a crossroads at a critical time.
The need for strong financial institutions to support the financial sector and the economy is very clear.
The Korean government has taken a bold step towards reforming its financial services industry so that it can develop a more robust sector. If successful, I believe these reforms will enhance the competitiveness of the Korean industry and contribute to the creation of a new regional financial center. These efforts are laudable and should be supported.