Are financial firms the bane of Korean banks?

Korean banks are looking to journey overseas as competition intensified from financial firms, threatening their profits. Even Kookmin Bank, the industry leader as measured by their financial assets, is feeling the heat. Kookmin bank opened its first branch in China last month.

Financial regulators are held responsible for deflating the domestic banking scene. In defence, the regulators claim that their aim is to promote healthy financial industry takeovers and integrating the capital markets in land South Korea a bigger role in the Asian securities trading scene. The new chairman of the Southern Korean Financial Supervisory Commission Kim Yong Duk said, “Let’s ease entry and exit rules for financial companies and encourage them to grow larger by expanding capital or mergers and acquisitions.”

Regulators aim to support domestic financial firms to expand overseas as well as to ease foreign rivals to enter the market. Their hope is that the integration will shape the path for South Korea to boom as the financial hub in East Asia.

The new legislation is christened South Korea’s “Financial big bang” and will let brokerage firms provide most financial services that are similar to banks, excluding deposits taking and insurance. Most analysts believe that the bigger firms will benefit more from the change than their rivals because they can develop more products and acquire smaller rivals to expand.

This is not a unique scenario in Asia, with many booming Asian countries opening up their doors and policy makers loosening their belts as their insatiable appetite for growth whet. Will the local banks be able to survive the onslaught carried out in the name of financial growth?