S. Korean financial firms should expand: report

SEOUL, Feb. 7 (Yonhap) -- South Korean financial firms should grow bigger through
takeovers and overseas expansion if they are to enhance their global
competitiveness, a report said Sunday, amid greater discussion worldwide over
stricter regulations on bank growth.
Three South Korean research institutions said in the joint report that local
financial firms should increase their size and expand the scope of their
business, but to the extent that they don't create systemic risks.
"Given the gap existing between local financial firms and global players, it is
inevitable that Korean financial companies will continue to become larger," the
report said.
"Within five years, South Korea should aim to nurture regional players in Asia by
securing more than one spot in Asia's top 10 banks. By 2020, over two or three
leading players need to come out."
The report, commissioned by the Financial Services Commission (FSC), the
financial regulator, was drawn up over the last seven months in a bid to provide
policy suggestions for the long-term development of the local financial industry.
The report follows U.S. President Barack Obama's recent proposal of what is now
known as the "Volcker rule" -- to curtail bank risk-taking and limit their growth
and trading activities.
Excessive risk-taking and loose regulations on financial frims were blamed for
the global financial rout, sparked by the collapse of Lehman Brothers in 2008.
But the report said it is difficult to apply Obama's suggestion to financial
firms in emerging countries, and that South Korea should to maintain its
deregulation stance in order to raise the competitiveness of the local financial
sector.
The view is in line with recent remarks by Chin Dong-soo, chairman of the FSC. He
said the rule would be ill-suited if applied to South Korea as local financial
firms need more growth.
The Korean banking sector is set to face a wave of takeover moves as the
government is seeking to privatize Woori Finance Holdings Co. and the state-run
Korea Development Bank (KDB).
The government plans to decide how to sell its controlling 50 percent plus one
share in Woori Finance in the first half, following a planned block sale of its
minority stake. It also plans to reduce its 100 percent stake in KDB Financial
Group within four years to put it in private hands.
"We suggest that the government should push for the sale of Woori Finance first,
and that the privatization of KDB be sought after improving its finance and
profit structures," the report said.
Meanwhile, the report said that although the chance that South Korea's household
debt will begin to sour is low, monitoring should be strengthened to stem
excessive debt growth.
"(The authorities should) maintain stricter rules on home-backed lending ... If
necessary, there is the need to consider imposing a cap on the size of home loans
over the mid- and long-term," it added.
In July and September, the financial watchdog toughened regulations on mortgage
loans due to concerns that a surge in home-backed loans could result in
ballooning housing prices.
sooyeon@yna.co.kr
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