Tearing Down the Walls
By Cho Jae-hyon
Finance Editor
A strong undercurrent of change is brewing in South Korea's financial industry. It's about breaking down walls safeguarding business turfs between financial firms and letting them compete on a more level playing field.
As always, dismantling compartments triggers various sorts of resistance and conflicts of interest. Financial firms, with boundaries drawn up to separate businesses, have been able to carry on their businesses comfortably and easily, without having to worry about their bread and butter being taken away.
But protection, if overdosed, eventually becomes a bane. For decades, the government's financial policy has been centered on banks. Banks have merged into other rivals or been bailed out by the government. After years of restructuring, only a handful of commercial lenders, now with bigger volumes and fewer rivals, command a dominant position in the industry with high entry barriers.
In contrast, securities firms have been left relatively uncared for. Without proper restructuring, the industry is overcrowded with too many, too-small stock brokerage houses. Compared to smarter and bigger foreign rivals, they are definitely underdogs and merit attention.
Time is ripe for the securities industry to grow bigger. Seoul stocks have never been as strong as now. A growing number of individual investors are willing to take risks involving stocks, gingerly but steadily shifting their money to equities away from savings accounts at banks.
As an initial step toward nurturing domestic securities firms into the likes of Goldman Sachs and Merrill Lynch, the government is anxious to get parliamentary approval for a capital market integration bill. If passed, it will help accelerate mergers and acquisitions among stock brokers, asset management firms and futures companies.
A lot of individuals now own equities, either directly or through equity funds. Millions trade stocks online and invest their money in mutual funds.
The stock market is insinuating itself into the everyday lives of ordinary Koreans as never before. It's emerging as a much more powerful force in the economic life of Korea.
People's financial future and the economy are more closely tied to the stock market with a universe of market players ranging from housewives and office workers to corporate executives and politicians. In the future, people will be more dependent on the stock market for retirement and even consumption.
After trumpeting the slogan to make the country a financial hub in the region over the past few years, the government now seems to have lost a sense of direction in the course of reaching that goal.
Still, it's a dream that should not be abandoned. A strong capital market is the foundation for the hub dream and an efficient stock market is an important ingredient for the development of the capital market that has been underdeveloped and underutilized. A strong stock market generates wealth for individuals, financing for investment, jobs for people and tax revenue for governments.
Seoul stocks are setting new records on ample liquidity and other positive issues. For a sustainable and long-term rally, fresh funds need to keep flowing into the bourse.
In years past, smart money steered clear of Seoul stocks. To be sure, they have disappointed many times before. Having been burned, even bulls are investing with care. Despite the rising optimism, Seoul remains a market only for those with a particularly strong stomach.
No matter what analysts and economists tell you, the stock market is basically unpredictable, and it's naive to pretend that it isn't. Just as virtually no one foresaw the current strength of the stock market, few are able to predict when the market will tumble.
Even so, some intrepid strategists now think the Seoul stock market could extend its rally. These bulls argue that this is not a party to miss. To keep this party going, the market needs more incentives to attract investors. And the Seoul stock market may enjoy more gains as it has long been undervalued.
A strong stock market will provide an opportunity for the restructuring of the securities industry. The model of a segmented financial industry is vulnerable to global competitive pressure. It is under growing pressure to open up to international market forces.
Politicians are dragging their feet on passing the capital market integration bill, which would offer consumers more choices of goods at lower prices, delaying the already overdue securities industry consolidation further.
At the center of contention is the clause allowing brokerage houses to provide cash transaction services to stock accountholders.
The process of getting to a stronger capital market is rough at best. Financial firms will desperately hang on to their business turf as usual. But leaving the walls of protection could leave financial firms looking like frogs in a pond. A more open, flexible financial industry will offer long-term benefits for both financial services firms and customers. People only hope policymakers have the courage to pick the right path.