Top regulator opposes expansion

By Kang Seung-woo

The nation’s financial watchdog said Thursday that it plans to closely watch whether domestic banks will stage overheated competition to expand their size.

“Due to the global financial crisis and loan-loss provision, local banks did not go all-out last year to crank up their assets. But they are likely to become proactive this year to expand their businesses,’’ Financial Supervisory Service (FSS) Governor Kwon Hyouk-se told reporters in a meeting.

“Although innovative and creative competition can raise the efficiency of the financial market, overly intensified cutthroat races can increase risks, which tend to harm profitability, liquidity and fiscal soundness.

According to the FSS, the total assets of local banks, which stood at 1,875 trillion won in 2008, dropped to 1,800 trillion won in 2009 before edging up to 1,842 trillion won last year.

“Banks need to maintain the growth of their total assets at an appropriate level within the limit of the nation’s economic growth rate,” said Kwon who took charge of the FSS last month.

But the 54-year-old life-time bureaucrat made it clear that the FSS’ stricter inspection is not aimed at troubling financial institutions.

In accordance with his remarks, the FSS is scheduled to check banks’ loans along with their annual management plans, loan-to-deposit ratio and other key performance indicators to prevent excessive competition expanding.

Kwon also cautioned about global expansions.

With the domestic financial industry hitting the saturation mark, local banks are turning their sights beyond Korea in efforts to find new growth engines and fresh revenue sources.

The move came on the heels of eased regulations in November 2010, which permit banks to report new overseas branches after their establishment.

“Rather than merely heading for global markets, they should find lucrative ones. If they do so, the FSS will support them with cooperation from the region’s financial regulator,” Kwon said.

He added that an ill-advised foray into international stages could trigger insolvency and the FSS plans to monitor overseas management and internal control systems.

Earlier this week, the FSS announced that 11 Korean banks’ overall profits from global operations tallied $369.1 million last year, up from $286.4 million the previous year.

However, observers point out that they showed little improvement in terms of localization in offshore markets because many of them still relied on offering services to Korean firms operating there.