[Opinion] Urgent Need for K Bank's Business Normalization

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

It has been over three years since domestic internet-only banks (hereinafter referred to as specialized banks) were launched. In January 2017, the first and second specialized banks, K-Bank and KakaoBank, were established, and a third specialized bank is also scheduled to launch. Toss Bank, which received a preliminary license last year, is currently awaiting final approval. The launch of specialized banks has positively contributed to the convenience of financial transactions, such as the spread of mobile financial transactions. However, the expansion of mid-interest rate loans targeting middle- and low-credit borrowers has fallen short of initial expectations.

The focus of specialized banks on lending to high-credit borrowers with credit ratings from 1 to 3 is related to the absence of sophisticated credit evaluation systems, but there was also the burden of capital expansion due to the increase in loans to non-prime borrowers. With the expansion of the mid-interest loan market in mind, the government announced last year the Special Act on the Establishment and Operation of Specialized Banks (hereinafter referred to as the Special Act), despite criticism that it undermines the principle of separation between banking and industry. Ultimately, with the passage of the Special Act in the National Assembly, ICT companies became able to hold up to 34% of shares in specialized banks, but K-Bank's lending business remains in a state of suspended operation. This is because KT, the second largest shareholder of K-Bank, has a past record of fines for violating the Fair Trade Act, which violates the major shareholder eligibility criteria, making capital increase difficult. K-Bank's BIS capital adequacy ratio is at 10.88%, close to the regulatory capital ratio (10.5%), making it impossible to conduct lending operations.

KT is bound by the shareholding limit excess ownership requirement in Article 5, Paragraph 3 of the Special Act (Special Provisions on Shareholding Limits for Non-Financial Major Shareholders), which states that there must be no criminal punishment equivalent to a fine or higher for violating the Monopoly Regulation and Fair Trade Act within the past five years. In March, a partial amendment to the Special Act that relaxed the major shareholder eligibility criteria (excluding violations of the Fair Trade Act from the shareholding limit excess ownership requirement, hereinafter referred to as the amendment) was rejected in the plenary session of the National Assembly, making it difficult for KT to increase its shares.

The suspension of K-Bank's lending business undermines the purpose of the Special Act. The suspension of operations of the country's first specialized bank, which was launched with great difficulty, seems to have considerable negative repercussions on the market. First, the competitive structure of the specialized bank market may weaken. As in other industries, the presence of a monopoly or oligopoly market can diminish the innovativeness of specialized banks, making it difficult to provide high-quality financial services. Additionally, it is negative from the perspective of financial consumers who urgently need financial support. The suspension of K-Bank's operations restricts loan support for those lacking financial history. Considering that K-Bank was relatively active in supplying loans to those lacking financial history in its early days, the normalization of K-Bank's operations can no longer be delayed. Especially in a situation where financial support for small business owners and households with reduced income due to the COVID-19 pandemic is urgently needed, the suspension of lending operations could represent an opportunity cost for the financial sector.

Recently, K-Bank announced a plan for a paid-in capital increase of 600 billion KRW, and its subsidiary BC Card has purchased 10% of K-Bank's shares. This appears to be a means for the early normalization of K-Bank, considering a roundabout capital increase through BC Card, a subsidiary of KT. However, K-Bank's fate is expected to be decided depending on the results of the National Assembly plenary session scheduled for today (the 29th). This is because the vote on the amendment, which was rejected last time, is scheduled in the plenary session of the National Assembly after the April 15 general election. Although the amendment passed the National Assembly's Political Affairs Committee the day before, votes in the Legislation and Judiciary Committee and the plenary session remain.

Before the National Assembly votes on the amendment, it is necessary to revisit the purpose of the Special Act and the background of the principle of separation between banking and industry. Although the principle of separation between banking and industry is based on prohibiting industrial capital from owning financial capital, there is a clear reason why the government and the National Assembly allowed non-financial companies to hold 34% of shares under the Special Act. It was judged that the entry of platform companies with sufficient capital and ICT technology into specialized banks is desirable for enhancing financial services and inducing competition from the perspective of strengthening the industrial competitiveness of the financial industry. Also, it is necessary to distinguish between industrial capital groups without a controlling shareholder and owner-chaebols. If the main background of the principle of separation between banking and industry is concerns about the financial sector becoming a private treasury due to circular shareholding schemes by chaebol owners for ownership and management purposes, it is not desirable to view all industrial capital negatively and equally.

In conclusion, since the suspension of K-Bank's lending business directly results in the suspension of financial support for the majority of financial consumers and thus represents an opportunity cost for the financial sector, it is hoped that the amendment will pass the National Assembly plenary session and that K-Bank's operations will be normalized promptly.

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

This content was produced with the assistance of AI translation services.