European banks expected to expand presence in Korea under Korea-EU FTA


European banks are expected to expand their presence in the local market following the implementation of the Korea-EU Free Trade Agreement.

Those aiming to making inroads into Korea include Banco Bilbao Vizcaya Argentaria S.A., a lender headquartered in Spain and the third-largest lender in the EU.

Korea’s regulatory officials are considering endorsing the operation of BBVA’s local unit, viewing its advancement as quite relevant to the free trade pact which took effect July 1.

An official of the Financial Supervisory Service said that the local financial market has already been sufficiently open to foreign players.

But he said indirect effects from the FTA would mean that “more and more European banks could follow the possibly active advancement of their corporate customers into Korea.”

He said the regulatory body does not rule out the possibility that the BBVA move is aimed at growing demand for business funds from European enterprises here.

The financial industry had been regarded as several sectors which would be less affected by the FTA.

Meanwhile, some analysts were anxious about the EU banks’ feasible transfer of Korean customers’ information to their headquarters.

A research analyst said their making inroads into the local market will eventually upgrade the financial market in terms of promoting competition.

“But the FSS should establish appropriate supervisory rules to prevent irregularities under eased requirements for opening branches here,” he said.

FSS officials also shared the view that that transferring customer information could emerge as a big problem.

“It could pose a problem,” an official said. “But the anxiety is also applicable to European regulatory bodies.”

The anxiety comes because European banks may not be obliged to set up additional network systems for their branches here.

“Under the FTA, their Korean branches will be allowed to use network systems of their headquarters,” an analyst said.

However, FSS officials downplayed the possibility, saying that the banks' local units would be instructed to set up data backup systems here even if they would be entitled to use their headquarters’ network systems without holding new ones.

Alvar Barra, director of Finance Services Committee at the European Union Chamber of Commerce in Korea, said the FTA text does not clearly define the scope of information sharing allowed.

“Currently there are many different laws being applied to treat confidential information at financial institutions and this needs to be sorted out under deregulation of policies.”

He said the Korea-EU FTA section on the financial industry didn’t progress further from existing rules already open for foreign capital and customers.

“So it managed to minimize the downsides of further deregulation, but they need to be updated as financial institutions of both economies penetrate into each other’s market.”

“The deregulations for the finance industry are meaningful in the long term, in the sense that they support local banks with plans to advance into Eastern Europe,” the Finance Ministry said in a report analyzing the impact of the trade pact.

But the opening of barriers for the industry needs to be more specific in the future to resolve difficulties they may face while operating in Europe, the ministry said.

By Kim Yon-se and Cynthia J. Kim 
(kys@heraldcorp.com) (cynthiak@heraldcorp.com)