Capital Raising and Business Plan Inclusivity Scores Rise
Restrictions on Banking Operations if Business Plan is Not Followed
On the 12th, Information Session for Prospective Applicants
“If Criteria Are Not Met, License May Not Be Granted”
[Herald Economy’s Reporter Hong Seung-hee] The financial authorities are imposing obligations for supplying funds to non-metropolitan regional enterprises in the new licensing standards for internet-only banks. They will also focus on assessing the feasibility of additional capital raising from major and primary shareholders. If the business plan related to the stability, innovation, and inclusivity of capital raising is not adhered to, restrictions could be imposed on both incidental and core operations, alongside granting licensing conditions.
Announcement of the 4th Internet Bank Licensing Standards…Increase in Scores for Capital Raising and Inclusivity
The Financial Services Commission (FSC) reported the new ‘Licensing Criteria and Procedures for New Internet-Only Banks’ to a regular meeting on the previous day, according to a statement released on the 28th. This action follows the government’s announcement last year to promote competition within the banking industry by pushing for new licenses for commercial, regional, and internet-only banks.
The newly established licensing criteria maintain continuity with the standards set in 2015 and 2019, while making specific adjustments considering the introduction and the competitive evaluation results of the current three internet-only banks (Kakao Bank, K-Bank, Toss Bank).
The core of these criteria focuses on four aspects: the stability of capital raising, the innovation of the business plan, inclusivity, and feasibility. Compared to 2019, scores for capital and capital raising plans have increased from 100 to 150, and inclusivity scores have risen from 150 to 200.
To enhance the stability of capital raising, financial authorities plan to review the possibility of securing sufficient capital at a certain level. They will primarily scrutinize the funding ability of major shareholders, evaluating whether they can maintain a certain share ratio through their own resources during capital expansion after licensing. In addition, the authorities will take into account any legal violations such as prosecution or criminal trials related to major shareholders, immediately suspending examinations if necessary.
Measures will also be taken to secure alternative funding obligations if sanctions on major shareholders restrict capital availability, such as obtaining commitment letters from other shareholders. This strategy is aimed at preventing issues faced by K-Bank in the past when the eligibility problem of major shareholder KT halted loan operations for a year.
Besides major shareholders, primary shareholders will also be required to submit additional capital raising plans. When commitment letters are submitted for liquidity supply, the capital raising plans of individual primary shareholders should also be specified. The authorities will review adherence to sound management standards considering existing managerial safety ratios of the three banks to prepare for situations like bank runs.
For business plan innovation, the authorities will assess whether alternative credit evaluation models can be established in connection with the technology held by the major shareholders. The provision of services to sectors where existing financial institutions face difficulties in funding will also be examined. Plans for integration and collaboration with other fintech and data companies will be reviewed, with a specific section for technology evaluation created within an external evaluation committee.
Inclusivity assessment will focus on two main areas: the primary customer base and regional financial contribution. Evaluations will cover support plans for finance for low-income groups and supplying medium-interest loans and the provision of business plans targeting differentiated customer bases. Furthermore, funding plans for non-metropolitan small and medium-sized enterprises must be established.
Importantly, the authorities will require consortia to submit specific annual target figures and implementation plans for the next five years on the funding plans for key customer bases and non-metropolitan regional enterprises. During evaluations, consortia must present concrete plans, such as the proportion of key customer base loans compared to total loans and the ratio of credit loans to collateralized loans in those key customer loans over the five years post-establishment.
Failure to Fulfill Promises Leads to Penalties…Ensuring Feasibility through Licensing Conditions
The financial authorities aim to focus on the feasibility of these evaluation criteria. Previously, the three internet-only banks approved did not have annual targets evaluated, only verifying whether a lending plan for medium and low-credit borrowers was submitted. Consequently, critics pointed out that the financing plans for medium and low-credit borrowers were not sufficiently realized.
In response, the financial authorities will impose licensing conditions that allow for restrictions on certain banking operations under the Banking Act if submitted business plans are not executed. This includes not just incidental operations but core tasks like deposit-taking and lending.
A representative from the FSC remarked, “Currently, the three internet-only banks are meeting their targets for medium and low-credit borrower loans. With the changed context, we aim to ensure stricter implementation for newly-established internet-only banks.”
The financial authorities will conduct an information session for prospective new entrants on the 12th and accept preliminary license applications from the first quarter of next year. After receiving applications, the review results will be announced within two months, with full licensing expected to proceed during the year.
An FSC representative stated, “The internet-only bank review will be conducted fairly and rigorously according to the law,” adding, “If the standards cannot be met, approvals might not be granted.”