Top regulators and heads of banking groups meet to discuss market stability


Korea’s financial regulators and heads of banking groups agreed on the need to reduce the importance of foreign investors in the stock market, officials said Tuesday.

It was the first time that the nation’s financial authorities officially expressed anxiety over the high foreign stock holding ratio after the local bourse was open to foreigners in 1992.

They agreed that it was very important for the country to revamp the ownership structure of the stock market, which has been hit by the eurozone debt crisis and the Standard & Poor’s downgrading of the U.S. sovereign rating.

“Due to the high foreign stock ownership ratio, our stock market has undergone fluctuation from external shocks,” the Financial Services Commission said in a statement after the meeting.

In particular, the two parties agreed to coordinate on raising the ratio of “institutional investors” on the stock market.

The meeting was held in downtown Seoul amid ongoing uncertainties over the nation’s stock market and economic conditions to come from the external woes.

Participants at the meeting included FSC Chairman Kim Seok-dong, Financial Supervisory Service Gov. Kwon Hyouk-se and five chairmen of financial groups KB, Woori, Shinhan, Hana and KDB.

The chief regulators urged major banking groups to bolster their management of foreign exchange liquidity amid worries the ongoing financial turmoil would dent the country’s economic soundness.

“Banks should not repeat their practice of depending on the government and the central bank when they face difficulties in foreign exchange procurement,” Kim told the participants.

He said it was necessary to take proactive measures by diversifying sources of foreign exchange, which currently focus excessively on Europe and the U.S.

Kim’s remarks come amid worries the ongoing financial storm, sparked by the first-ever U.S. credit rating downgrade and the eurozone’s debt risks, may have a bigger-than-expected impact on the local economy.

“It is difficult to forecast how long it will take for the real economy to recover,” he said.

“We cannot rule out the possibility of the situation having an unexpected impact on the local economy.”

He also issued a warning against local banks foreign currency liquidity conditions, saying that a severe shortage could shake the economy.

Kwon instructed the banks to refrain from offering excessively high dividends to shareholders, and urged them to put priority on soundness.

Regulators have been holding a series of meetings of heads of financial companies including brokerage firms in a bid to calm uneasy investor sentiment.

By Kim Yon-se (kys@heraldcorp.com)