Tue, Oct 14, 2008 - Page 11 News List

S Korea eases regulations on investment in banks


South Korea’s government said yesterday it would allow conglomerates and other non-banking firms to buy a bigger stake in local banks to ease privatization and guard against the global financial crisis.

Under a law to be submitted to parliament next month, the conglomerates and the other firms will be allowed to own up to 10 percent of local banks, the Financial Services Commission (FSC) said.

Current law limits investment in a bank by a non-financial company or an industrial group to 4 percent. The curbs were imposed after the 1997-1998 Asian financial crisis to stop the family-run conglomerates, which dominate the economy, from using financial units to obtain easy credit for reckless expansion.

The watchdog said the new law would allow conglomerates, pension funds, private equity funds and foreign banks to take larger stakes.

The move will help boost competitiveness and smoothe the privatization of state-owned banks, Kim Joo-hyon, a senior FSC official, told reporters.

The privatization of state banks is a key part of South Korean President Lee Myung-bak’s economic reform policy aimed at revitalizing Asia’s fourth-largest economy.

Lee’s government has vowed to push ahead with creating South Korean “mega-banks” to better compete in the global industry.

“New regulations will help domestic lenders secure capital more easily and after all improve their ability to cope with a financial crisis,” Kim said.

Bankers and conglomerates had asked the government to ease regulations in the face of rapid growth in foreign ownership of the industry.

After being hit hard by the 1997-1998 crisis, many financial institutions were bailed out with government money and then sold on to foreign buyers in a government bid to recoup state funds.

Others are still state-controlled.

South Korea plans to start reducing its 100 percent stake in Korea Development Bank next year and fully privatize it by 2012. The bank was established in 1954 to provide financing for local firms.

Considering market conditions, the government also plans to unload part of its stakes in Woori and IBK. The government owns 73 percent of Woori Finance and 57.7 percent of IBK.

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