[Foreign Exchange Structure Reform] Banks Say "Forex Market Expands but Competitiveness Lacking"

Improved Global Won Recognition Enables New Customer Acquisition
Concerns Over Infrastructure Shortage for Extended Business Hours
Regulatory Enhancements Needed for Financial Authorities' Identity Verification

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] As the foreign exchange market opens up, domestic banks are experiencing a mix of expectations and concerns. The most directly affected aspect for domestic banks is the restructuring of the 'Won currency exchange' market. On the 7th, foreign exchange departments of major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) held meetings and were busy preparing countermeasures.

Until now, foreign investors wanting to buy Korean stocks had to enter the foreign exchange market, which is mainly operated by domestic commercial banks, to convert dollars into won. However, starting from the second half of next year, global banks will be able to conduct won currency exchanges primarily until 2 a.m., and eventually 24 hours, expanding the foreign exchange market front globally.

Domestic banks see advantages in this as it can instill a positive perception of the won among overseas investors and create new business opportunities if exchange transaction volumes increase. On the other hand, there are concerns that competing with global banks, which are ahead in terms of platform capabilities, could result in losing even their existing market share.

An official from Bank A's foreign exchange team said, "If accessibility to the won currency exchange market improves, overseas investors will show more interest and new customers can be discovered. However, when domestic banks have to share the won currency exchange market share with foreign banks and compete on the same level, our competitiveness is still lacking."

Above all, extended operating hours and insufficient infrastructure are worrisome. An employee involved in foreign exchange operations at Bank B said, "The foreign exchange market, which used to operate only during regular business hours, will be extended primarily until 2 a.m., but challenges include manpower allocation and infrastructure compared to foreign banks." He added, "If liquidity is insufficient during nighttime hours or offshore influence grows, responding to sudden market fluctuations will also be problematic."

There are also issues that financial authorities need to review as the foreign exchange market opens. A foreign exchange team official from Bank C said, "Companies participating in foreign exchange transactions must undergo KYC (Know Your Client) procedures, and until now, this required verifying contact information and home addresses of company representatives." He expressed concern, saying, "This standard must be applied to newly entering foreign companies as well, but it is questionable whether this is feasible, and it could become an obstacle for our domestic banks."

An official from Bank D said, "Fees are one of the main sources of revenue for banks," and added, "Ahead of the expansion of the won currency exchange market, efforts from both banks and authorities are necessary to develop competitiveness to compete with overseas banks."