Regulators to boost number of commercial banks

The government is trying to bring new players into the banking industry as the oligopoly-like structure could hamper competition and go against consumers' interests.

Booths for automated teller machines of major commercial banks are seen in Seoul. [NEWS1]

In Korea, there are only five local commercial banks – KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup - with nationwide branches, which has been the case for decades.

The government is trying to bring new players into the banking industry as the oligopoly-like structure could hamper competition and go against consumers' interests.

The move came after President Yoon Suk Yeol called for the need to encourage competition, pinpointing a lack of innovation and the practice of providing similar loans and savings products with little to no different interest rates.

The Financial Services Commission (FSC) and Financial Supervisory Service(FSS) will initially encourage regional banks to convert into nationwide commercial banks, they said Wednesday.

DGB Daegu Bank, headquartered in the city of Daegu, has expressed its intention to apply for a change in status, according to the regulators, as it hopes to increase its branch network outside of the city.

DGB complied with the financial criteria required to become the commercial bank with over 100 billion won of capital and its major shareholders comprising financial companies. If it gets the nod, it will be the new commercial bank in 31 years

BNK Financial Group’s Busan Bank and JB Financial Group's JB Bank fall short of the standards.

It remains to be seen whether newly-categorized regional banks can become a competitive force due to their limited size.

For instance, DGB's branches total 202 as of the end of last year, about a quarter of KB Kookmin Bank, which has the largest number of brick-and-mortar outlets across the region at 856. DGB only has 9 branches outside Gyeongsang Province.

“Even if it would be hard to expect an immediate impact, the thing that matters is how much effort the Daegu Bank put into the transition,” FSC vice chairman Kim So-young said. He also floated the possibility of hosting a new internet-only bank after the entry of Kakao Bank, Kbank and Toss Bank.

The regulators will also lift the criteria for acquiring savings banks, increasing the maximum number of banks to be acquired or merged to 4. The ceiling is applied on the condition that the buyout purpose is consolidation and the target banks are based outside of Seoul or Gyeonggi metropolitan area.

President Yoon took aim at the five megabanks with strong words, vowing to take measures to ease the burden of households suffering from higher interest rates even as banks enjoy massive profits from central banks' aggressive monetary tightening.

“People are suffering a lot from the banks’ high interest rates,” President Yoon said during a senior secretary meeting in February. “Banks serve the public interest, and as such, some of their profits should return to the people, self-employed and small business owners as a benefit of so-called finance of co-existence.”

BY PARK EUN-JEE, KIM NAM-JUN [park.eunjee@joongang.co.kr]