Korea far behind global financial norms

Key research center chief calls for gradual overseas expansion into Korean population hubs

By Kim Jae-won

The head of a state-run think tank recently claimed that regulators and employees of the nation’s financial industry are not diligent enough, causing its standards to lag 30 years behind the norms of advanced countries.

In a contributing column in for September to “Listings,” a monthly magazine, Kim Tae-joon, who heads the Korea Institute of Finance, argues, “Korean banks have competed in lending more on the domestic market, resulting in a similar earning structure and therefore making them vulnerable to outside shocks.”

Regarding regulators, Kim said, “All are oriented for short-term performance, depriving them of a long-term strategic vision.”

He called for the revamping of their governance and a more positive effort to expand overseas.

Kim also came up with reasons for each of the latest three financial crises Korea has undergone.

For the 1997 currency crisis, the cause was financial institutes lending in order to help the nation’s economic growth often in violation of market principles; the 2003 crisis was attributable to excess credit card loans and cash advances; and the 2008 crisis stemmed from the lack of liquidity that in the end brought in government efforts to supply it.

“Korea’s financial interrelations ratio, a ratio of financial assets to gross national income (GNI) is about 8 times the level seen in advanced nations in the 1980s,” Kim said.

The economist, who has taught at Seoul-based Dongduk Women’s University, said that Korea’s globalization is also at a very low level compared to other advanced economies.

He said that the average transnational index (TNI) of Korean banks marked 4.9, far below Switzerland-based UBS, Frankfurt-based Deutsche Bank and New York-based Citigroup, which posted 76.5, 75.2 and 43.7, respectively.

TNI measures the level of globalization of a multinational company, using foreign assets, sales and employment to the whole business.

The 55-year-old economist said that the authorities should consider giving incentives for financial companies which try to reach overseas markets to help them go global.

According to the column, Kookmin Bank, the nation’s biggest lender is ranked 70th in the world and 17th in Asia in terms of total assets. He added that the capital of the biggest securities company in Korea marks just 2 percent of a big international investment bank’s capital.

Kim, who earned his Ph.D. from Columbia University, said that Korean banks have neglected to bring in financial experts because they were focused on short-term business, which emphasizes sales.

Kim is not the first expert who has advised financial companies to go global to find out new revenue sources. Many analysts and economists have pointed out that it is time to go beyond domestic territories, but many local lenders have been reluctant to do so due to a lack of bankers familiar with the language, culture and financial knowledge of other countries.