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Banking Revolution: South Korea Welcomes New Domestic Players

Photo by Ethan Brooke / Unsplash

South Korea's banking sector to welcome new entrants.

Why it matters: South Korea is poised to allow new domestic entrants into its banking sector for the first time since 1992.

This significant development is designed to spur competition in a market that five major lenders have historically controlled.

The Key Points

  • On Wednesday, the Financial Services Commission (FSC) announced that it will now accept applications for nationwide commercial banking licenses.
  • The decision, which is expected to promote competition, is in line with earlier comments by President Yoon Suk Yeol, who has expressed concern about banks' profit margins from the interest rate differential between deposits and loans.
  • Daegu Bank, a regional subsidiary of DGB Financial Group Inc., is expected to be among the first to benefit from the updated regulations. DGB shares rose 1.2% on the news.
  • Meanwhile, shares of South Korea's existing significant lenders, including the country's first online-only lender, KakaoBank Corp, fell in trading.

The Big Picture: The move, amid increased regulatory scrutiny of the banking sector, also includes provisions for more online-only banks and adjustments to loan-to-deposit rules for local branches of foreign banks.

The FSC suggests that subject to a successful application, Daegu Bank could be granted a license by the end of the year, allowing it to expand its operations nationwide.

This policy shift is essential in promoting competition in South Korea's banking sector and marks the first entry into the commercial banking sector in more than three decades.