Korea's financial regulator emphasizes keeping hands off banks' loan pricing

Even fee structures will not be touched.

The new head of Korea's Financial Supervisory Commission (FSC), Jong-Ryung Lim, noted that the financial regulator will not intervene on banks’ loan pricing, fee structures, and dividend pay-out ratios, according to Maeil Business.

According to a research note from Nomura, if true, it thinks the move could potentially re-rate the Korean banks.

However, another local press, News1, quoted the new head as stating “the FSC’s policy to guarantee the autonomy of financial firms will be maintained,” and Woong-Sub Jin, the head of Financial Supervisory Service (FSS), requesting banks to “lower their lending rates following the BoK’s recent rate cut does not conflict with that policy.”

In addition, the regulator will likely reassess the funding cost on the credit purchase and ask the credit card operators to lower credit card merchant fees accordingly, given the fall in funding cost along with the declining key policy rate, according to Hankyung.

The merchant fee is reassessed every three years based on the regulation that overhauled the credit card merchant fee structure in 2012.

Here's more from Nomura:

The new head of FSC may truly believe that the regulator should not intervene on the loan pricing and fee structure of financial firms.

However, we are doubtful that the stimulus-desperate Park administration would allow the Korean banks to increase loan spreads and fees.

In addition, if the FSS applies the most stringent capital adequacy ratio under Basel III on the financial holding company level (disregarding the risk profile of the Korean banks), then FSS can pretty much dictate the dividend pay-out ratio.

The required CET1 ratio including 2.5% countercyclical buffer and 2.5% domestic systematically important financial institution would be 12%.

This means KB Financial Group (105560 KS, Neutral) may be the only Korea bank that could pay out dividends without the regulator’s approval.