Banking Industry Competition Assessment Approaching... Financial Holding Companies' Establishment of 'Internet Banks'

Scheduled to Announce Results Within the Year
Discussion on Additional Internet Banks Also Underway

[Asia Economy Reporter Kiho Sung] Financial authorities are set to begin the ‘Banking Industry Competitiveness Evaluation’ as early as this month to assess the future competitiveness of the banking industry. The results of the evaluation, expected within this year, are anticipated to determine whether financial holding companies will establish internet-only banks, drawing significant attention from the financial sector.

According to the financial sector on the 15th, the Financial Services Commission (FSC) plans to issue a research service contract for the banking industry competitiveness evaluation as early as this month. Although there were recent speculations that the evaluation results might be released next year, the FSC intends to proceed with the evaluation as scheduled. An FSC official stated, "The procedures for the banking industry competitiveness evaluation are progressing as planned," and added, "The results will be announced within this year."

Once the FSC sets the evaluation criteria for the future competitiveness of the banking industry and commissions research institutions such as the Korea Institute of Finance, it typically takes about 3 to 4 months to produce the results. To complete the evaluation within this year, the research contract must be initiated by August at the latest. The previous banking industry competitiveness evaluation conducted in 2018 had its results announced on December 3 of the same year.

The reason the banking industry competitiveness evaluation is attracting attention from the financial sector is that the results will determine whether additional internet-only banks will be established. The evaluation is a comprehensive procedure that reviews the banking industry and licensing policies. Therefore, the results serve as a policy basis for financial authorities to judge whether additional internet-only bank licenses are necessary. If the evaluation concludes that ‘new entrants are needed,’ discussions on establishing internet-only banks by financial holding companies may gain momentum. Conversely, if the conclusion is that ‘the current number is sufficient,’ such initiatives are likely to be shelved.

The Korea Federation of Banks submitted a statement to the FSC in May this year, summarizing that financial holding companies are interested in establishing internet-only banks. The statement included the positions of eight financial holding companies expressing their desire to establish internet-only banks, along with overseas cases and expected benefits. The Federation has been conducting demand surveys and research services related to internet-only bank establishment targeting financial holding companies.

At that time, the FSC focused on licensing the third internet-only bank, Toss Bank, and stated that it would comprehensively assess additional internet-only bank establishments by financial holding companies through the banking industry competitiveness evaluation.

However, even if the conclusion this year indicates the need for new entrants, it is widely expected that it will take some more time for financial holding companies to establish internet-only banks. A financial sector official commented, "In the case of Toss Bank, the final license was obtained this year after the banking industry competitiveness evaluation in December 2018," and predicted, "Even if a positive conclusion is reached within this year, it will take at least more than a year to establish the bank."

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