Whether K Bank's 'Normalization' Will Be Determined Next Month

Postponement of Discussions on the Amendment to the Special Act on Internet-Only Banks

[Asia Economy Reporter Kim Hyo-jin] The question of whether K-Bank, which is unable to conduct new loan operations due to financial difficulties, will be 'normalized' soon is expected to be resolved next month. This is because the final discussion process in the National Assembly for the passage of the Internet-only Bank Special Act amendment, which will open the way for capital replenishment, will extend beyond this month.

According to political and financial circles on the 27th, the National Assembly's Legislation and Judiciary Committee did not discuss the passage of the Internet-only Bank Special Act amendment at its plenary meeting the day before. The discussion was postponed due to the urgent need to pass the 'Corona 3 Acts,' including the Infectious Disease Control and Prevention Act.

The amendment is expected to be discussed in the Legislation and Judiciary Committee as early as the 4th of next month, according to the schedule agreed upon by the political circles (the plenary session on the 5th of next month). The future spread of the novel coronavirus disease (COVID-19) may act as a variable.

K-Bank planned to overcome its financial difficulties by changing KT to the major shareholder and receiving a capital injection of 590 billion KRW, expanding its capital to the 1 trillion KRW level. If such conditions are established, other major shareholders such as Woori Bank and NH Investment & Securities are also expected to participate in a large-scale capital increase.

The current Internet-only Bank Special Act prohibits KT from becoming the major shareholder. This is because KT's collusion (violation of the Fair Trade Act) is considered a disqualification for major shareholders. The core of the amendment is to exclude violations of the Fair Trade Act from the disqualification criteria for major shareholders of internet banks.

K-Bank has been struggling with financial difficulties since its opening in April 2017. As of the end of September last year, K-Bank's Basel III Capital Adequacy Ratio (BIS ratio) was 11.85%, the lowest in the industry. According to banking supervision regulations, if the BIS ratio falls below 10.5%, dividend restrictions are imposed, and if it falls below 8%, financial authorities take management improvement measures.

The amendment passed the National Assembly's Political Affairs Committee in November last year but was repeatedly blocked at the final stage in the Legislation and Judiciary Committee. The opposition from Rep. Chae I-bae of the Bareunmirae Party, who argued that excluding the Fair Trade Act from the major shareholder review grants special favors to certain large corporations and ultimately undermines the entire financial business law system, had a significant impact.

Meanwhile, if the amendment is discussed again in the Legislation and Judiciary Committee next month, it is highly likely to be put to a vote unless there are issues such as lack of quorum.

Meanwhile, K-Bank's Executive Candidate Recommendation Committee held its first meeting yesterday to discuss the appointment of the next CEO. The term of the first CEO, Shim Sung-hoon, ends next month. Attention is focused on the thoughts of major shareholders KT and Woori Bank.

While internal and external figures from KT and Woori Bank are cautiously mentioned, some speculate that if the amendment passes, there will be a need to normalize and stabilize operations as quickly as possible, and therefore CEO Shim is expected to be reappointed.