Gov't campaign against oligopoly raises hope for online, regional banks

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By Yi Whan-woo

The government's campaign to break up the banking industry's oligopoly is fueling optimism among digital and regional lenders that regulatory barriers will be lowered for them to expand their presence against larger competitors.

Five offline banks with nationwide branches ― KB Kookmin, Shinhan, Hana, Woori and NH NongHyup ― have been dominating the market, with current rules that restrict smaller latecomers from offering more quality services.

Against this backdrop, financial regulators are mulling over measures that could overhaul the market as five companies are reaping windfall profits in the midst of unfair competition while falling short of public expectations to share such profits with society.

The five account for 60 to 70 percent of the deposit and loan market in Korea, while their recent earnings are mainly driven by a steep benchmark interest rate.

In 2022, they raked 39.38 trillion won ($30.4 billion) in combined net interest income, up 19.4 percent from a year earlier.

“The government is still in its early stage of reform efforts but it hopefully will come up with concrete measures for us to offer better rates for our customers,” an internet-only bank employee said on condition of anonymity.

The staff pointed out that Financial Supervisory Service (FSS) Governor Lee Bok-hyun has condemned major banks for being complacent about the current oligopolistic structure.

In particular, Lee pledged to help online banks and fintech companies to facilitate competition in the banking industry during his visit to KakaoBank, the country's largest branchless lender, Feb. 27.

A major area of business interest for online lenders, including K bank and Toss Bank, is to be able to increase the loan amount for borrowers who fall in the lower 50 percent in terms of their credit rating.

Many internet-only bank customers have ratings that do not qualify them to borrow money from big offline banks. Thus, being allowed to lend those customers greater amounts could become a key to raising profits.

In that regard, the FSS governor said he will “aggressively go over possible measures to ease loan policy for online bank customers.”

Concerning regional banks, the government has not commented on how they should contribute to ensure fair competition in the market.

In addition, the Citizens Coalition for Economic Justice, a Seoul-based civic group, assessed that easing lending rules concerning small and medium-sized enterprises (SMEs) will be a key to boosting the sales of regional banks.

In the name of balanced economic development, regional banks must lend at least 60 percent of loans to SMEs, many of them concentrated outside the Seoul metropolitan area.

For instance, BNK Busan Bank, the country's largest regional bank, lent 61.3 percent of loans to SMEs in 2022 as compared to the 40.5 percent of KB Kookmin Bank.

“Softening such regulations on SMEs would mean more retail customers can borrow money from regional banks besides major nationwide banks,” the Citizens Coalition for Economic Justice said, adding that the two sides will then compete to offer lower rates for customers.

The collation also said allowing the regional banks to increase the number of branches outside the area where they are based can help expand business.