Korea’s financial watchdog is moving to reform the country’s banking law, its chief said Wednesday, amid mounting controversy over a U.S. fund’s plan to sell its controlling stake in Korea Exchange Bank.
The envisioned law amendment revolves around a clause that prohibits a non-financial player from holding more than a 4 percent stake in local commercial banks.
“The non-financial player policy was adopted in 2002. Since then, issues (over the policy) have been raised several times,” said Financial Services Commission Chairman Kim Seok-dong in an interview with Yonhap News Agency.
“Apart from the Lone Star Funds issue, overall plans to revise (laws on) bank ownership structure are under review,” Kim said.
The top regulator’s remarks come as Lone Star’s plan to wrap up a deal with No. 4 banking group Hana Financial Group Co. to sell its 51.02 percent stake in KEB faces strong public criticism and doubts over its eligibility as a financial industry player.
In 2003, the U.S. private equity firm became a major shareholder of the No. 5 lender as it was recognized as a financial industry player allowed to buy 10 percent or more of a local bank by law.
Opponents, however, have argued that Lone Star should be reclassified as an industrial player and should have been barred from buying KEB nine years ago, citing its asset portfolio which includes non-financial assets.
Under local banking law, a company is classified as an industrial group or a non-financial player if more than 25 percent of its capital is invested in non-financial firms or its assets in such firms exceed 2 trillion won ($1.7 billion).
A non-financial player cannot hold more than a 4 percent stake in a lender. Critics said if Lone Star is classified as an industrial capitalist, its 2003 purchase of KEB should be ruled illegitimate from the beginning.
The banking law revision, which is expected to be completed in the first half, may include measures such as raising the 2 trillion won limit as well as tightening document submissions of overseas assets.
The FSC is set to give its final permission on the deal between Lone Star and Hana Financial upon the completion of the Financial Supervisory Service’s assessment of Lone Star’s eligibility as a financial player.
Meanwhile, the FSC chairman said he is aiming for a “timely” privatization of the state-run KDB Financial Group Inc. and Woori Finance Holdings Co. for the sake of the local finance industry and market.
The government, which owns 100 percent of KDB Financial, must begin to reduce its stake no later than May 2014 under the current blueprint for the banking group’s privatization. (Yonhap News)