New financial products packaged with the financing of overseas projects including nuclear power plants and construction projects taken over by Korean firms
Chairman Shin Je-yoon of the Financial Services Commission.
The government will kick off a plan to overhaul the financial transaction system to turn it into an advanced one like those found in advanced nations based on a New Vision that Chairman Shin Je-yoon of the Financial Services Commission (FSC) unveiled at a lecture session held at the National Assembly Economic Policy Forum on Sept. 5.
The new vision includes fostering a Korean type of investment banking and developing new financial products not based on the margin of interest rates for loans and deposits in order to create a new business model to kill two birds with one stone, so to speak, financial industry sources said.
According to the national competitiveness strength announced at the World Economic Forum on Sept. 4, Korea stood at 25th in national strength and 81st in the rankings of finance, one of the worst in the world, showing that Korea’s financial industry in on the verge of a crisis and needed to shake things up a little, they said.
Chairman Shin pointed out at the National Assembly Economic Policy Forum that Korea doesn’t have a global bank in terms of global operations with the domestic financial market at a saturation point and the financial value-added weight in suspension.
He said domestic banks missed opportunities to go abroad for profit while engulfed in competition in the domestic financial market.
Some banks tried to enter the global financial market from the middle of the 2000s, but were unable to go far enough due to the subprime mortgage crisis that started in the United States with its investment banking operations fizzling out.
Now, the Korean banks have been trying to find niche markets in Asia by developing financial products to match with projects undertaken by large Korean businesses abroad.
Shin pointed out Hyundai Capital as a benchmarking model, which has been providing funds for the installment sales of Hyundai and Kia cars. Car buyers with not much money can get financing from Hyundai Capital. General Electric has been doing that type of financing for a long time, although it is an industrial company, but with a large financial services portfolio. When GE sells high-priced products, its financial affiliates provide the financing in a package deal.
The model can be used in projects involving shipbuilding, marine plants, and nuclear power plants, and the sale of automobiles to finance those projects carried out by large Korean firms operating overseas as financial product packages combining industry and finance.
At a glance, the FSC plans to see both industry and finance join hands in advancing overseas with projects. For example, financial companies will provide financing to overseas construction projects to be undertaken by Korean builders and domestic non-life insurance firms would provide insurance coverage to those projects to hedge risks.
FSC officials said they are in the middle of collecting all available ideas and a clearer outline of the vision will be made when it is soon announced.
Heavy financing is required for the nuclear power plant projects in the Middle East and Vietnam, among others, worth tens of trillions of won, and those projects can be secured through consortiums formed by private Korean firms including financial firms, they said.
The domestic financial market will go through a huge change, too, in the near future, the officials said.
The FSC has primarily been focused on setting up a creative financial base to support SMEs. Chairman Shin said the core of his plan is to build a ladder fund, which he hopes the parliament will approve. The fund for the first stage of the project would be around 2 trillion won and it will be extensively operated after this month, he added.
With regard to the privatization of Woori Financial Group, Shin said nothing has been done conclusively on the matter thus far, but it will be pushed with the sale of regional banks first split from the group, which are in bad shape in terms of operation and needs to be approached cautiously.
As to the integration of the Korea Development Bank and Korea Finance Corp. at the core of the reform of the handling of policy loans, Shin said the financial support function to SMEs will remain as it is for now, but the support to start-ups will be strengthened.