South Korea’s financial authorities announced Sunday plans to introduce at most two internet-only banks within the next two years, in an apparent move to ramp up competition in a market in the course of deregulation.

Business entities with plans to operate new banks without brick-and-mortar branches will be granted preliminary regulatory approval by the Financial Services Commission by May 2019, according to the FSC’s plans. The application will be accepted by March. Considering times it takes to build database management system and gain business license, it is expected to take about more than a year for new banks to come into being.

Before the preliminary screening by the FSC, an advisory panel to the head of Korea’s financial watchdog, the Financial Supervisory Service, will evaluate the eligibility of applicants’ business models.

The new banks’ operations will not be limited to consumer loans, but will also cover business credit for small and midsized enterprises.

This comes ahead of a new special act aimed at deregulation that takes effect in January next year. The bill, which passed the parliament in September this year, allows a business entity devoted to information and communications technology to own a maximum of 34 percent of shares of an online-only banking firm, up from the 4 percent threshold as stipulated in Korea’s Banking Act.

The FSC seeks to invite new “small-sized, yet highly specialized” banking entities owned by Korean ICT companies, amid “lackluster competition in the domestic banking industry,” it said in a release Sunday.

Korea is home to two players in the branchless banking industry. Both players, K bank and Kakao Bank, began operations in 2017, but both were met with their de facto parent companies’ upper bar in ownership.

The Banking Act banned nonbanking entities from holding over 4 percent of shares with voting rights, to prevent the nonbanking companies’ abuse of bank capital, forcing the parent companies of K bank and Kakao Bank to come up with a consortium made up of shareholders including financial institutions.

The regulation has hampered the decision-making process of internet-only banks, such as decisions related to paid-in capital increase, in case of capital shortage.

By Son Ji-hyoung 
(consnow@heraldcorp.com)