Korea Capital Market Consolidation Act brings opportunities, challenges

Korea Capital Market Consolidation Act brings opportunities, challenges - Fitch

	Published : Tue, 10 Jul 2007 09:18 By : Agencies Print this Story

MUMBAI (Thomson Financial) - Fitch Ratings said Korea's Capital Market Consolidation Act (CMCA), effective January 2009, would facilitate the emergence of larger-sized investment banks in the country and stimulate consolidation in the non-bank financial sector.

The agency believes the Act would pose challenges as well as opportunities to Korea's commercial banks, as they will be exposed to greater competition.

The CMCA, passed on July 3, allows securities companies access to the country's settlement system, and introduces a 'negative system' in defining financial products.

Despite having posted favourable operating performances in the past two years, Fitch expects Korean commercial banks will face more challenges from the newly emerged financial investment banks.

Korean commercial banks are already seeing tougher competition and given the demand for higher yield products there is an increasing move to cash management accounts at securities companies from bank deposits, triggering a sector-wide decline in lower costs deposits.

Fitch takes the view that under the CMCA, the commercial banks' efforts to expand fee/commission businesses like wealth management and investment funds sales would also be challenged by some leading investment banks.

Overall, Fitch believes the bank-affiliated securities companies, larger-sized securities companies and the Seoul operations of foreign investment banks would be beneficiaries under the CMCA, given the wider and freer business scope.

TFN.newsdesk@thomson.com

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Korea Capital Market Consolidation Act brings opportunities, challenges - Fitch