Financial Services Commission to Decide on Daegu Bank's Conversion to Commercial Bank Review Criteria on the 31st

The Financial Services Commission (FSC) is set to begin the formal process for Daegu Bank's transition to a commercial bank. The review will start in early February, and the transition is expected to be completed within the first quarter.

At the ‘2nd Regular Meeting of the Financial Services Commission’ scheduled for the 31st of this month, the FSC plans to put forward the review criteria for approving the conversion of regional banks into commercial banks as an agenda item. If the agenda is approved, Daegu Bank is expected to submit its application for approval to the FSC. The review will commence after the submission of the application.

Since this is the first case of a regional bank converting into a commercial bank, there are no explicit criteria specified in the current law. The FSC has conducted a legal review of the procedures for new approvals or changes to existing approvals.

[Image source=Yonhap News]

According to materials submitted by the FSC to Oh Ki-hyung of the Democratic Party of Korea, the FSC will process the conversion of a regional bank to a commercial bank under the banking business approval stipulated in Article 8 of the Banking Act. The essence of the approval is pursued as a ‘change in approval content’ (from regional bank to commercial bank).

Daegu Bank meets the capital and other requirements for conversion to a commercial bank. According to Article 8 of the Banking Act, the capital requirement for a commercial bank is ‘at least 100 billion KRW.’ As of the third quarter of last year, Daegu Bank’s capital stood at 700.6 billion KRW.

However, last year’s illegal securities account opening incident may pose an obstacle. From August 2021 to July last year, 114 employees at 56 Daegu Bank branches improperly opened 1,662 securities accounts without customer consent. The Financial Supervisory Service is expected to hold a disciplinary committee meeting to determine the level of sanctions. Since the incident last year, FSC Chairman Kim Ju-hyun stated, “During the review process, the feasibility of the business plan, soundness, and the suitability of major shareholders must be examined, but (financial accidents) may be somewhat considered during the review process.”