Financial Holding Companies Targeting Internet Banking... Closely Watching 'Kabang Management Evaluation'

The Financial Supervisory Service Begins Management Performance Evaluation This Month
May Affect Competitiveness Assessment in Banking Industry

[Asia Economy Reporter Kiho Sung] As financial holding companies are considering establishing independent internet-only banks, the financial sector is closely monitoring various upcoming evaluations by financial authorities. Since there are no legal restrictions under current laws for financial holding companies to establish internet banks, the direction may be determined depending on how the financial authorities position themselves through these evaluations.

According to the financial industry on the 15th, the Financial Supervisory Service (FSS) will begin a management status evaluation of KakaoBank within this month. KakaoBank has not undergone a management status evaluation since its launch in 2017. The FSS intended to conduct the evaluation last year after the three-year grace period ended, but it was postponed due to COVID-19.

However, this management status evaluation of KakaoBank differs from the comprehensive inspection expected to be conducted in the second half of this year. The management status evaluation is a periodic review by the FSS of the overall management condition of financial companies, primarily assessing capital soundness, asset soundness, appropriateness of management, profitability, liquidity, and market risk sensitivity. In contrast, the comprehensive inspection focuses on compliance items and checks for various regulatory violations.

The evaluation of KakaoBank is drawing attention because it could influence the banking industry competition evaluation scheduled for the second half of this year. The financial authorities are reportedly not planning to accept preliminary applications for internet banks within this year, as they need to complete the ongoing approval process for Toss Bank. Therefore, the establishment of internet banks by financial holding companies is expected to be significantly influenced by the banking industry competition evaluation in the second half of the year.

In the 2018 banking industry competition evaluation, when two internet banks were operating, the conclusion was that the level of competition within the sector was somewhat insufficient. At that time, the financial authorities stated as a supplementary measure to the 2018 evaluation that "in the short term, new approvals for internet-only banks, which are possible under current laws, could be considered." Based on this, additional applications for internet banks were accepted in 2019, paving the way for the launch of the third internet bank, Toss Bank. If the upcoming evaluation in the second half of this year also concludes that new entries are necessary, serious discussions regarding the establishment of internet banks by financial holding companies are expected to proceed.

A financial industry official said, "According to the current Financial Holding Companies Act and its enforcement decree, there are no legal restrictions on financial holding companies owning 100% of internet bank subsidiaries," adding, "The establishment of internet banks by financial holding companies depends on the stance of the financial authorities, and this evaluation, which can serve as the basis for their decision, will play a decisive role."