Bank Ownership Regulations Liberalized

Large conglomerates from next year can buy up to 10 percent of a bank’s stakes and exercise voting rights.

The regulations on bank ownership will also be eased for pension funds, including the Korean National Pension System and private equity funds (PEFs).

Financial holding companies focusing on securities and insurance will be able to own manufacturing subsidiaries.

The Financial Services Commission yesterday announced measures to ease regulations on bank share ownership and improve the system for financial holding companies.

The commission will announce a bill today and submit a revised bill to the National Assembly this year after revision by the Government Legislation Ministry and the Cabinet.

The proposal allows industrial capital to own up to 10 percent of exercisable bank shares, up from four percent. If industrial capital becomes the largest stakeholder with more than four percent of bank shares, however, prior government approval is needed.

PEFs created with less than 30 percent of industrial capital investment are considered financial capital, giving them a chance to own banks after government approval. So far, PEFs with less than 10 percent of industrial capital investment can become the largest shareholder.

Pension funds will be able to invest in banks after being exempted from the rule that categorizes assets and capital in the form of BTO (build-transfer-operate) and BLT (build-lease-transfer) into industrial capital.

Government supervision will be strengthened to counterbalance the eased regulations. Holding companies cannot give loans to manufacturing subsidiaries on preferential terms. Limits will be placed on the granting of credit between a holding company and the largest shareholders and ownership of outstanding shares.

Also eased were regulations on financial holding companies. Insurance and securities holding companies but not banking holding companies will be allowed to have manufacturing companies as subsidiaries.

jaeyuna@donga.com sanjuck@donga.com