News Analysis; Korean Banking Industry Most Heavily Regulated among OECD Nations

Article excerpt

For the first time in over 100 years of the foreign banking history since the British HSBC opened its first branch at Inchon in 1890s, a total of 63 banks in Seoul yesterday delivered a letter of protest to the nation's Chief Executive (front page, March 3, The Korea Times).

In the letter, they demanded that Chong Wa Dae instruct financial regulators to ease various restrictions imposed on their businesses in foreign exchange and corporate lending.

Simply put, the foreign banking circle gave up dealing with financial authorities and decided to talk to the Chong Wa Dae team with their requests for deregulation.

There are three major confronting issues that lie between the overseas banking community and the local regulatory authorities.

The first of course is the loss-sharing scheme for Daewoo Group.

For foreign banks, Korea was one of those markets in which there is no such thing as red number on their balance sheets related with bankruptcies of major conglomerates.

Even when their big Korean borrowers go down there were always bailouts and guarantees offered by the government in the past.

With the Daewoo Group fallouts foreign banks again held on to the belief that the government will fully guarantee the repayment of Daewoo debts.

But it proved to be otherwise that the government flatly ruled out the guarantee call, saying foreign banks should assume the same responsibility as local creditor banks.

As a result over 200 foreign creditors of Daewoo had to register almost 60 percent haircut on their books.

Next is the reduction of lending limits and definition of capital base that the two sides have been engaged in a dispute for several years.

The revised regulation on banks' lending limit effective this year required foreign banks to withdraw over 2. …