Why Hyundai Motor is launching an Internet bank outside Korea

Hyundai Motor Group is launching an Internet-only bank named Hyundai Capital Bank Europe in Germany during the first half of next year, as a means to stretch out to the European market. With seed capital of 44.2 million euros (48.88 million U.S. dollars), the online bank will sell various car financial products including installment payments, lease and insurance products, while also will be engaged in lending and deposits. In Germany, global leading car makers including BMW, Mercedes Benz, Volkswagen, Toyota and Honda operate Internet-only banking as well as general offline banking. Hyundai Motor is setting up an Internet bank in Germany because of strict regulations in Korea.

Korea`s banking law stipulates that a non-financial company can`t hold more than 4 percent of shares with voting rights in banks. Monopoly regulation and fair trade laws also restrict large conglomerates like Samsung and Hyundai Motor who are restricted in circular equity investments to set up a bank. The Financial Services Commission said last month that regarding Internet-only banks, the government will push through banking law revision to expand the ceiling of industrial capital`s shareholdings in banks. However, business groups with assets of more than 5 trillion won (4.3 billion dollars) were excluded. A majority of lawmakers are also negative on the financial industry watchdog`s banking law revision saying it is a law favorable to chaebols, making it uncertain to pass the National Assembly.

In Korea, there is few financial capital that has enough funding capability to own a bank. Due to strict regulation on the separation of industrial capital and financial capital, there are few candidates who can privatize state-owned banks except for overseas speculative capital like Lone Star that had made huge damage to the Korean economy in the past. The Korea Deposit Insurance Corporation`s attempt to privatize its largest shareholder Woori Bank failed four times, which was mainly due to the regulation regarding the separation of industrial and financial capital.

There are concerns that if this regulation is lifted, banks can fall into a private vault of large conglomerates. However, it is time now to consider the regulation`s actual damages to the economy. It is necessary to break down entry barriers and attract suitable competitors in order to raise competitiveness of Korea`s financial markets and boost customer convenience. Easing this regulation could be put aside for a while since it is a sensitive issue, but it is still desirable to drastically ease non-financial companies` entry barrier into Internet banks.