The Korean government will continue to deregulate the financial sector to promote growth, despite the recent U.S. move to tighten banking rules, according to top Korean government officials.
The government reaffirmed their deregulation stance, at a forum in Seoul where government officials, private economists and CEOs discussed future strategies for the nation’s financial industry, according to this Korean article in the Korea Economic Daily.
According to the report, doubts had been cast over consolidation and restructuring of the banking sector in South Korea, after recent changes in countries like the US, had led to apprehensions over the restructuring of local banks, like Woori Finance, which is about to be privatised (see Update: Woori Finance’s Privatization).
Another report in the paper cited an unnamed insider at the Financial Services Commission as saying that given the size of the South Korean economy, there were still too many small banks, whose efficiency could be boosted by M&A.
The Korea Economic Daily also provided two interesting graphs (translated below), that back up the belief that Korea’s financial sector is underveloped, and could gain dramatically from consolidation.
(Source: Korea Economic Daily)
(Source: Korea Economic Daily)
Also covering the event was the Korea Herald article – ‘Seoul to continue financial deregulation‘.
“If we indiscriminately tighten all regulations including a market entry ban or a sales restriction just as advanced nations do, it could hurt the growth of the local financial industry,” said Kwak Seung-jun, chairman of the Presidential Council for Future and Vision.
Liking the status of the Korean financial industry’s autonomy to being at an “elementary school level,” Kwak said a financial deregulation would help the industry leap into “a junior-high school level.”
While the government eases regulations, the regulator should make sure to enhance supervision, he added. Kwak’s view was shared by Chin Dong-soo, chairman of the Financial Services Commission.
Chin said U.S. President Barack Obama’s recent proposed plan to curb the banking sector’s risky activities would be ill-suited if applied to Korea, given the small size of the market.
“It is not appropriate to apply global trends directly to the Korean case because the Korean financial sector has different characteristics from those in advanced countries,” Chin said.
“Korea should sweepingly improve the structural weakness which was exposed by the latest financial crisis, while encouraging a continued growth of finance,” he said.
Finance Minister Yoon Jeung-hyun said the government will raise its ability to counter a systemic risk and prevent a recurrence of a financial crisis by tackling debt problems and stabilizing the foreign exchange market.
”We need to enhance our crisis management ability by closely monitoring the macroeconomic supervision system and the early alert system,” Yoon said.
“To make sure that debt problems do not hurt economic recovery, we will push corporate restructuring and help the financial sector clean up bad debts as soon as possible,” he said.
In a discussion of how to redesign the global financial system to strengthen the industry’s competitiveness, Deputy Finance Minister Shin Je-yoon said the current global financial system faces “a flood of regulations,” saying many countries are announcing too many initiatives to strengthen regulations. Korea will carefully review which to adopt and which not to, he said.
For previous stories on Korea’s financial deregulation and/or consolidation see here.
(Sources: Korea Economic Daily, Korea Herald)
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