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| Financial Services Commission Vice Chairman Kim So-young speaks during a task force meeting held at the government complex in central Seoul, Wednesday. Yonhap |
Small license, challenger banks considered to promote competition in banking
By Anna J. Park
Financial authorities made it official Wednesday their moves to bring in more competition in the local banking sector, aiming to break the current oligopoly enjoyed by the five major commercial banks. Citing the current oligopoly structure as harmful to customers' and utility, the authorities suggested the need to lower the hurdle of banking licenses for new entrants.
The Financial Services Commission (FSC), top financial regulator, and the Financial Supervisory Service (FSS) jointly hosted the first task force meeting committed to improving the management and practices of banks on Wednesday morning. The task force was made up of officials of both financial regulators, key financial industry associations and scholars. Its task was in response to President Yoon Suk Yeol's criticisms earlier this month about local banks taking excessive profits amid soaring interest rates at the expense of a debt-burdened public.
"The banking industry has an oligopoly structure, as the entrance into the banking market is limited by the government's approvals," FSC Vice Chairman Kim So-young said during the task force meeting held at the government complex in Seoul, Wednesday. "There are criticisms that banks rake in excessive profits from rising interest rates, rather than providing ample choices and differentiated services for customers," he added.
The vice chief of the regulator said the government will be examining various measures to promote further competition in the banking sector. Specifically, he mentioned the possibility of introducing a "small license," a certification system for each separate function of a lender, as well as "challenger banks," which are small retail banks that earn licenses to compete with major banks to allow more new entrants into the industry. Challenger banks were introduced in the U.K. following the global financial crisis in 2009 to break the oligopoly that was enjoyed by only a few major banks. This was amid a consensus that fundamental changes were required to address problems in the banking sector.
In addition, the financial authorities will mull over strengthening shareholders' rights by introducing "say-on-pay," through which a firm's shareholders have the right to vote on the remuneration package of executives. Regulators are also looking into ways to strengthen "clawback" provisions for bank executives. A clawback is a contractual provision whereby payments to an employee can be required to be returned in case of misconduct or falling earnings of the company.
"While the public's burden on debt interest payments is increasing, bank executives enjoyed an incentive party from their excessive interest profits, drawing sharp rebukes from the public," the FSC vice chairman continued, criticizing banks' complacent business practices.
He also said the matters of excessive incentives and lack of shareholder return policy is what the entire financial industry needs to ponder. The FSC and FSS plan to develop specific measures by the end of June.
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