S. Korea to ease bank ownership rules

SEOUL, Oct. 13 (Yonhap) -- South Korea's financial watchdog said Monday the
government will allow industrial groups to hold bigger stakes in banks in a move
to beef up competitiveness in the banking sector and smoothly sell state-run
lenders.
Current regulations forbid a non-financial company or an industrial group from
holding more than 4 percent of shares with voting rights in a bank, while
financial firms are permitted to own up to 10 percent of a bank.
Under South Korean banking laws, a company is classified as industrial group if
over 25 percent of its capital is invested in non-financial companies, or its
assets in such companies top 2 trillion won (US$1.56 billion).
"The government plans to raise the cap of bank ownership by an industrial group
to 10 percent, based on the strength of review process and post-supervision," the
Financial Services Commission (FSC) said in a statement.
"The move would help boost the competitiveness of the Korean banking sector and
bring about smooth privatization of state-run banks," the FSC said. The watchdog
plans to submit related bills to the National Assembly this year.
According to the FSC, the government will allow pension funds, private equity
funds and foreign banks to more easily invest in a bank.
Under current regulations, a private buyout fund is classified as a non-financial
firm when an industrial group invests more than 10 percent in the fund. The FSC
said it will raise the ceiling to 30 percent.
The watchdog also said it will not regard overseas non-financial assets held by a
foreign lender as industrial capital when a foreign bank itself is not controlled
by an industrial group.
Currently, a foreign bank is viewed as an industrial group even if its assets in
overseas non-financial companies top 2 trillion won.
Supporters said the move would help the government find investors for stakes in
three state-run financial institutions -- Korea Development (KDB), Woori Finance
Holdings Co. and the Industrial Bank of Korea (IBK). But critics argue that eased
rules would only help conglomerates or chaebol add a bank, through which they can
easily get credit for expansion.
South Korea plans to start reducing its 100 percent stake in KDB next year and
fully privatize it by 2012 through share and private sales. KDB, 100 percent
owned by the government, was established in 1954 to provide financing for local
firms.
Considering market conditions, the government also plans to unload part of its
stakes in Woori and IBK. The government currently owns 73 percent of Woori
Finance and 57.7 percent of IBK.
Meanwhile, the FSC said it will allow holding companies focusing on the insurance
business to control non-financial subsidiaries like manufacturers, but not permit
them to hold non-financial units as grandchild companies. The move aims to
prevent such a holding company from using assets entrusted by policyholders in
expanding its business, the watchdog said.
But so-called financial investment holding companies will be allowed to put
non-financial affiliates under its wing as a grandchild firms. Financial
investment holding firms do not own bank and insurance subsidiaries with focusing
on the securities and other investment banking business.
South Korea's brokerage sector is set to undergo a sea change as the new law on
capital market deregulation will go into effect in February 2009. The law is
designed to break down barriers separating the securities, futures and asset
management sectors and allow brokerage houses to play a bigger role in the
financial sector.