- Ownership Structure of Banks and Problems of Majority Stockholders’ Nationalities
May 8, 2006
According to Ownership Structure of Banks and Problems of Majority Stockholders’ Nationalities, an article from the recent Financial Risk Review published by the KDIC, the financial ratios, such as ROA and BIS Capital Adequacy Ratio, of domestic banks and foreign banks has displayed little difference for the past 5 years. However, in terms of the asset management, the ratio of SME corporate lending of the foreign banks has decreased from 40.18% in 2000 to 33.16% in 2005 while that of the domestic banks has maintained the ratio above 50%.
Furthermore, some of the claims that are associated with the expansion of foreign banks into domestic financial market were proven to be true, however most of them are not yet verified.
The expense efficiency of domestic banks has improved since 2000, evidently indicating that the entry of foreign banks into domestic financial market has contributed to the progress in the expense efficiency to a certain extent.
Also, the claim that foreign banks do business primarily with top-ranking customers seems to be true as their household loan ratio increases while the SME loan ratio decreases.
It appears that the open policy of the bank industry plays a significant role in improving Korea’s credit ratings and the conditions of borrowing of domestic banks.
However, there has been not enough evidence of transferal of management strategies, mitigation of pro-cyclical lending, and self-limitation of foreign banks on operation in the domestic market. We should strive to ease the anti-foreign capital sentiment rather than put an emphasis on negative aspects of foreign capitals in the current stabilized financial system.
There is the need for standardization and systemization of financial market information, which can create positive externalities, and the need for encouraging cooperative competition among domestic and foreign banks. In addition, the regulator should keep an eye on the governance of the banks as well as the management so that the foreign banks in Korea currently in operation can contribute to the growth of the financial sector.
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