U.S. FTA will batter banking sector: study
Korea Herald, Korea
U.S. FTA will batter banking sector: study
By Lee Sun-young
24 July 2004
The much-touted benefits of a free trade agreement with the United States will be confined to commercial enterprises, while other sectors of the Korean economy, particularly the banking industry, will take a battering, a think thank warned yesterday.
Kim Dong-hwan, research fellow at the Korea Institute of Finance said in a report that the country’s feeble banking sector faces the risk of becoming subjugated by industrial capital.
Currently, the Korean government strictly separates commerce and banking by prohibiting industrial corporations from acquiring or operating banks, and conversely banning lenders from engaging in commercial activities.
Kim said the ongoing FTA negotiations are adding urgency to the Korean government’s drive for finance sector reforms and other significant environmental changes that could lead to a loosening of those restrictions.
"The FTA talks could act as a catalyst for enacting the proposed Capital Market Consolidation Act and lifting the cap on shareholding between subsidiaries of large conglomerates, as well as easing or scrapping the financial market restructuring law," he explained.
"If the regulatory authority remains cautious on allowing U.S. financial institutions access to the Korean market, the changed environment would provide an impetus for local industrial capital to establish big-sized financial institutions."
The capital market consolidation act, yet to be submitted to the National Assembly, seeks to tear down boundaries in the financial industry. The financial restructuring law puts restrictions on conglomerates’ stakeholding in financial units.
Kim said big conglomerates such as Samsung already have a strong presence in the nonbanking sector such as insurance and securities brokerages, and once they make inroads into the banking sector, they will soon overtake the existing players.
Even with such a mix of industrial and financial capital, however, the report said it is a long shot for the country’s banking sector to prepare itself for global competition.
"Even if all the assets and resources of all domestic financial institutions are put into one, it still wouldn’t come close to global entities," he pointed out.
The study urged the government to draw up measures to minimize the expected side-effects of its capital market overhaul plan, while striving to ensure a level playing field under which local institutions can compete with foreign competitors.
