Foreign capital has mixed impacts on financial sector

Foreign capital has mixed impacts on financial sector

Dec 09, 2005

'Foreign capital has mixed impacts on financial sector'

The new head of the Korea Federation of Banks said yesterday that the increasing presence of foreign capital in Korea has had mixed impacts on the development of the nation's once-cloistered financial industry.

One negative aspect of the growing influence of foreign capital is that banks have become so risk-averse as to overlook their given role of channeling capital into the corporate sector, said Yoo Ji-chang, chairman of the Korea Federation of Banks, in a news conference yesterday.

"With the excessive avoidance of risky assets, foreign banks, for example, have reduced corporate lending significantly," said Yoo, 56, the former president of the state-run Korea Development Bank who took the helm of the Korea's bank federation Nov. 25.

His remarks came amid growing comments on the role of foreign capital in the local financial markets. Some commentators said the risk-averse management style at local lenders, influenced by foreign players, could hamper the soundness of the financial industry in the long-run, although such change may enhance short-term profitability and productivity.

The nation's top financial regulators have also emphasized the need for local financial institutions to look at overseas markets as a new growth engine.

Foreign financial institutions, however, have played a positive role as they have introduced sophisticated financial services to the local market, Yoo said. Their increasing presence here in Korea should help the nation transform its economic and financial infrastructure in the longer term.

Yoo described the domestic market situation as "Wimbledon effects" - foreign players dominate the market and make huge profits just as in the world-renowned Wimbledon tennis championship. Competition with foreign institutions should help local lenders enhance their competitiveness, which would contribute to the development of the economy.

Foreign share ownership at major local lenders is estimated to reach as much as 60 percent. Foreign investors, for example, hold a stake of 86 percent in Kookmin Bank, the nation's largest lender.

Yoo, who was appointed as the head of the KDB in 2003, served in various financial posts including the vice head of the Financial Supervisory Commission and financial policy director at the nation's Finance Ministry.