Korea to approve Daegu Bank as first new commercial bank in 31 years

DGB Daegu Bank head office in Seoul [Photo by Lee Chung-woo]

DGB Daegu Bank, a regional bank in Korea, is set to transform into a nationwide commercial bank, marking the country’s first new commercial bank in 31 years since the establishment of the Peace Bank of Korea in 1992.

Alongside the introduction of the new commercial bank, the entry barrier for all eligible entities in the banking industry, which has been dominated by a cartel of five banks, will also be lowered, according to the nation’s financial regulator.

Financial Services Commission Chairman Kim Joo-hyun made the announcement on Wednesday following a meeting between the authority and financial group chairs. The announcement came as part of the authority’s grand scheme to enhance the overall management and operation practices in the banking sector.

“With the operation of a task force dedicated to enhancing of the banking sector and implementing targeted measures, we aim to introduce fair and effective competition in the sector,” said Kim.

To begin with, the authority plans to pursue the conversion of Daegu Bank into a commercial bank within this year.

“The license for a commercial bank will be granted by the end of this year, unless there is any issue, once Daegu Bank submits a formal application,” said FSC Vice Chairman Kim So-young during a briefing.

The conversion of Daegu Bank to a commercial bank could serve as a stepping stone to break the cartel among the five banks. When approved, Daegu Bank will also be the first commercial bank headquartered in a regional city other than the capital.

“If we obtain a commercial bank license, we will reinvest the profits and capital from nationwide operations into the local economy, as a representative bank in the region,” said Kim Tae-oh, chairman of DGB Financial Group Inc.

The financial authority plans to further encourage cases like Daegu Bank’s conversion to a commercial bank.

“We will actively promote the licensing of new commercial banks, regional banks and internet banks,” said the vice chairman. “Our goal is to transform the banking sector into a competitive market where any player can enter as long as they have sufficient financial resources and a viable business plan.”

The authority also highlighted potential collaboration between traditional financial institutions and fintech companies.