The Financial Services Commission and the Financial Supervisory Service held a meeting with bank holding companies on July 5 and announced a set of measures intended to promote competition in the banking sector. The measures have been prepared after holding a series of taskforce meetings on improving the management and operating practices of banks since February this year. The key banking sector reform areas include (a) promoting competition and overhauling the industrial structure, (b) improving the interest rate system through expanded availability of fixed interest rates, (c) enhancing loss absorbing capacity, (d) increasing the proportion of non-interest revenues, (e) improving the employee remuneration system and the shareholder return policy and (f) promoting corporate social responsibility.

At the beginning of the meeting, FSC Chairman Kim Joo-hyun delivered opening remarks emphasizing the need to promote fair and effective competition in the banking sector. The following is a summary of Chairman Kim’s remarks.

Over the past four months since the end of February, the FSC and the FSS have been preparing reform measures together with private sector experts, financial industry officials and research institutions on the six key task items concerning how to improve the management and operating practices of banks. Due to the oligopolistic nature of the banking industry, there has been a widely held view among the public that banks are reluctant to make changes despite their easy profitmaking structure. Therefore, the main purpose of the reform measures prepared by the taskforce is to promote fair and effective competition in the banking sector—but more importantly, competition driven by market forces. Authorities will work to bring about fair competition by requiring banks to provide adequate information about their business operation and products to the market so that consumers can make inform decisions. The purpose of creating an online loan transfer system introduced in May was exactly this. Along with personal credit loans currently available, as a way to promote competition in the loan market, authorities will seek to allow refinancing of home-backed mortgage loans from the online loan transfer system by the end of this year.

Second, we will promote competition by allowing more players to enter the market. Regional banks will be permitted to expand their business operation throughout the country. For the first time in thirty years, a new nationwide bank can be established. This change is meaningful as the new nationwide bank can have its headquarters not in Seoul but in another regional city. We will issue new banking licenses to those equipped with sufficient capital and a viable business plan. Authorities will actively promote entry of new players including internet-only banks and other types of specialized banks if there are demands and their business plans are considered stable and viable. With regard to the issue of nonbank financial companies joining the payments network, authorities will continue to work on necessary measures in coordination with the Bank of Korea and relevant industry groups as this issue requires a guarantee of system stability.

Next, we will work to create conditions where nonbank financial institutions and fintech businesses can compete with banks. We will promote savings banks’ M&A activities to bolster their competitiveness and to boost competition in the deposit and loan markets. We will work to strengthen collaboration between finance and information technology to enable creation of more innovative products and services based on, for instance, high-tech data analytics capability of a big data firm and financial input from a financial company.

The role of bank holding companies is important in this regard. Financial holding companies should develop medium- to long-term strategies and work to create synergy among their subsidiaries. However, due to the limited scope of their business area and restrictions regarding data sharing, consigning work between their subsidiaries and prohibition on having a nonfinancial business as a subsidiary, it is true that financial holding companies faced many regulatory obstacles in the big blur era. Therefore, we will soon introduce regulatory reform measures on financial holding companies, too.

Once we have the reform measures on financial holding companies, along with the measures for improving rules on the ancillary service system sought after since last year and the measures to promote competition in the banking industry all set in motion in harmony, I believe that our financial industry can develop as a major player in the world.

* Please refer to the attached file for details.