Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Regulator seeks to break up oligopoly in banking industry
Financial Supervisory Service (FSS) Governor Lee Bok-hyun speaks during a press conference held at the watchdog's headquarters in Seoul on Feb. 6. Yonhap
By Anna J. Park
President urges banks to share burden amid inflation
By Anna J. Park
The Financial Supervisory Service (FSS) has begun to look into ways to induce further competition in the local banking industry, aiming to break up the current oligopolistic system dominated by five major commercial lenders ― Shinhan, KB Kookmin, Hana, Woori and NH NongHyup.
The move follows President Yoon Suk Yeol's criticism earlier this week of local banks paying hefty bonuses to their employees as the public suffers from soaring loan interest rates.
“We need to seriously examine various measures that promote further market competition in key banking businesses, including deposits and loans, so that financial consumers could use banking services at more efficient prices,” FSS Governor Lee Bok-hyun said during the watchdog agency's executive director meeting Tuesday, a day after Yoon made the comments at a meeting of senior presidential secretaries on Monday.
The president also stressed at an emergency economic and public livelihood meeting on Wednesday that the financial industry, which is closely related to the livelihood of the working class, should voluntarily share the burden as inflation remains high.
He especially pointed to the need to decrease the interest margin, or the difference between interest paid and interest received, amid criticism that banks reaped record earnings on huge interest margins while overlooking the hardship suffered by the working class.
Yoon suggested encouraging more competition among financial institutions, such as lowering the barrier between the financial and IT industries.
With the goal stated, the financial authority aims to make changes to the oligopolistic system in the banking industry, which has been allowing lenders to reap huge profits from soaring global interest rates as the public reels under the added loan-financing burden.
The five major commercial banks account for about 77 percent of the entire won-denominated deposit accounts held by a total of 18 banks across the country as of 2019. Each of the five major banks have about a 15 to 16 percent market share of the sector. When it is calculated with loans, the five major banks also account for a 67 percent market share, forming an actual oligopoly.
The watchdog agency believes that the major banks do not feel the need to lower loan interest rates, due to their de-facto dominance over the market.
“It is estimated that the problem of the current loan-to-deposit interest rate gap could be mitigated, when other players are allowed to join the market as competitors. As perfect competition would bring an efficient market price, the FSS is currently considering diverse measures or institutional systems to introduce more competition into the sector,” an official at the FSS said.
The financial authority is said to be looking into cases in foreign countries. For instance, the U.K. induced further competition into its banking industry by encouraging new lenders to open in the country, resulting in the expansion of the banking sector.
Market watchers expect the FSS would further promote the businesses of internet-only banks in the country to introduce more competition among lenders. The FSS is also expected to fragment banking licenses, in a way that the financial regulator issues separate authorizations to each function of a bank's business, allowing more participants to join the market.