All Candidates Rejected... Is the Fourth Internet-Only Bank at Risk of Collapse?

All Candidates Fail Funding Stability Criteria
Financial Services Commission Says "Unrelated to Launch of New Administration"
Some Observers See Loss of Momentum for Fourth Internet-Only Bank

As a result of the preliminary review for the fourth internet-only bank license, all four candidates were rejected. This was because all applicants failed the first review criterion, "stability of funding." The Financial Services Commission drew a clear line, stating that the failure to grant licenses was unrelated to the launch of the new administration. However, some observers cautiously raised the possibility that the momentum for establishing a fourth internet-only bank has significantly weakened, increasing the risk of the initiative being scrapped altogether.

On September 17, the Financial Services Commission held a regular meeting and denied preliminary approval to all four applicants: Soso Bank, Korea SOHO Bank, Podo Bank, and AMZ Bank. The review criteria consisted of: ▲ capital and capital-raising plan (150 points), ▲ major shareholders and shareholder composition plan (50 points), ▲ innovation (350 points), ▲ inclusiveness (200 points), ▲ stability (200 points), and ▲ human resources plan (50 points). The decisive reason for the rejection was that none of the applicants met the requirements for "stable funding," which is fundamental to banking operations.

Korea SOHO Bank, considered the strongest candidate, received positive evaluations for expanding financial opportunities for small business owners and for its innovative approach. However, it was rated insufficient in terms of its major shareholder's financial strength, business sustainability, and stability. Korea SOHO Bank stated, "We humbly accept the review results," and added, "We will address our shortcomings and continue toward our goal of establishing a specialized bank for small business owners." Kim Dongho, CEO of Korea Credit Data and leader of the SOHO Bank consortium, said, "Although the first bank dedicated to small business owners was not realized this time, I am confident this is a future that will inevitably come. If an internet-only bank for financially vulnerable groups and small business owners is established in line with the President's pledge, it will certainly be the Korea SOHO Bank consortium."

In addition, Soso Bank was deemed to lack sufficient capital strength, while Podo Bank and AMZ Bank were criticized for insufficient transparency of major shareholders and unclear prospects for additional capital contributions. In particular, AMZ Bank's major shareholder structure was not specified, making the review process difficult. The Financial Services Commission formed an external evaluation committee composed of private-sector experts in each field and conducted the review over three days, starting on September 12. The schedule was delayed from the original plan because some consortia failed to submit basic documents, causing disruptions.

Some observers say the outcome-no candidates passing the preliminary review for the fourth internet-only bank-was already anticipated. Previously, the financial authorities announced there would be no cap on the number of new internet-only bank licenses, but also made it clear that no licenses would be granted if the requirements were not met. In fact, in May 2019, both the Toss Bank consortium and Kiwoom Bank consortium failed in their bids for the third internet-only bank license. Toss Bank, which was deemed to lack sufficient funding capability, was only able to secure preliminary approval after forming a new consortium with investors such as Hana Bank.

This time, the conditions for the fourth internet-only bank license have become even more stringent, raising the bar further. As existing internet-only banks have focused on household loans, not only innovation but also the ability to supply funds to small and medium-sized enterprises and small business owners outside the Seoul metropolitan area has become a key licensing criterion. However, with the economic downturn driving up delinquency rates among small business owners, there is analysis that it is realistically difficult to satisfy both soundness and social responsibility. The complex consortium structures, with up to 15 participating companies, are also cited as a factor. With so many stakeholders involved, the direction and focus of each consortium were not clearly defined, which was pointed out as a limitation.

Although the Financial Services Commission emphasized that this decision was unrelated to the launch of the new administration, some suggest that the fourth internet-only bank initiative has effectively been scrapped. The Financial Services Commission stated, "This decision to deny licenses is the result of a balanced consideration of financial industry innovation, competition promotion, and stability," and added, "It is inappropriate to link the review outcome to the new administration." However, some analysts note that since the fourth internet-only bank initiative was pursued under the previous administration, it has lost momentum following the change in government. Furthermore, President Lee Jaemyung's pledge for a 'mid-rate loan specialized internet-only bank' was not included as a national policy task, further fueling speculation that the fourth internet-only bank initiative may be abandoned.

An official from the financial sector said, "As existing internet-only banks have grown by focusing on household loans, the higher standards required for the fourth internet-only bank also influenced the denial of preliminary approval. Although the President pledged to establish an internet-only bank specializing in mid-rate loans, the current situation suggests that the focus is more on financial support for small business owners than on creating a new internet-only bank, so the fourth internet-only bank is likely to be pushed down the new administration's list of priorities."