Ownership of banks

Ownership of banks (은행의 소유구조/銀行所有構造) refers to the regulated ownership of commercial banks in Korea.

To overcome lots of side effects arising out of large business groups' control of commercial banks during the so-called "development period" in the 1960s and 1970s, limits on the ownership of commercial banks were first adopted by the Banking Act in December 1982. The single ownership of block shares of commercial banks is strictly limited in order to prevent commercial banks from becoming private funds of industrial capital (금산분리/金産分離).

Key words
commercial bank, bank holding company, ownership, business group (zaibatsu 재벌/財閥)

Limits on the Ownership
This issue is in the jurisdiction of the Financial Services Commission (FSC, 금융위원회) subject to the Banking Act (은행법) and the Financial Holding Companies Act (금융지주회사법).

In General
Currently, the single ownership of block shares (including those owned by foreign entities) of a bank or a bank holding company is restricted to under 10 percent (15 percent in the case of a local bank or a local bank holding company) of the total shares holding voting rights guaranteed by the Banking Act and the Financial Holding Company Act.

If the ownership is to exceed 10 percent (15 percent in the case of a local bank or a local bank holding company), it must be approved by the FSC on any occasion when it surpasses 10 (15 percent in the case of a local bank or a local bank holding company), 25 and 33 percent.

Ownership by firms specializing in non-financial businesses (비금융주력자/非金融注力者) was formerly limited strictly to 4 percent or less (15 percent in the case of a local bank or a local bank holding company), but since October 2009 for a bank and December 2009 for a bank holding company it has been eased to 9 percent. Article 15 (Stock-Holding Limit, etc. by Same Person) of the Banking Act
 * (1) The same person shall not hold stocks of a financial institution in excess of 10/100 of the total number of its issued voting stocks: Provided, That this shall not apply to cases falling under any of the following subparagraphs and cases of paragraph (3) and Article 16-2 (3):
 * 1. Where the Government or the Korea Deposit Insurance Corporation established under the Depositor Protection Act holds stocks of a financial institution; and
 * 2. Where he is holding not more than 15/100 of the total number of issued voting stocks of a local financial institution.
 * (2) Where the same person (excluding persons prescribed by Presidential Decree) falls under any of the following subparagraphs, he shall report on the matters prescribed by Presidential Decree which are necessary for confirming the stockholding or change of the stockholding ratio of a financial institution to the Financial Services Commission: 
 * 1. Where he holds more than 4/100 of the total number of issued voting stocks of a financial institution (excluding a local financial institution; hereafter in this paragraph the same shall apply);
 * 2. Where the same person falling under subparagraph 1 becomes the largest stockholder of the financial institution concerned;
 * 3. Where the ratio of stockholding by the same person falling under subparagraph 1 changes to the extent of not less than 1/100 of the total number of issued voting stocks of the financial institution concerned;
 * 4. In cases of a private equity fund holding more than 4/100 of the total number of issued voting stocks of a financial institution, when any change in its partners occurs; and
 * 5. In cases of a special purpose company holding more than 4/100 of the total number of issued voting stocks of a financial institution, when any change occurs in its shareholders or partners (including cases where any change occurs in the partners of a private equity fund, who are shareholders or partners of the special purpose company).
 * (3) Notwithstanding the text of paragraph (1) excluding its subparagraphs, the same person may hold stocks of a financial institution with approval of the Financial Services Commission in excess of any such limit as set in any of the following subparagraphs: Provided, That the Financial Services Commission may grant approval by fixing separate specified limits of stockholdings other than the limit as set in each subparagraph only where it is deemed necessary in view of the possible contribution to the efficiency and soundness of the banking business and the stock distribution of stockholders of the financial institution, and if the same person intends to hold stocks in excess of the approved limit, he shall obtain additional approval from the Financial Services Commission: 
 * 1. The limit as set in the text of paragraph (1) excluding its subparagraphs (the limit as set in paragraph (1) 2 in case of a local financial institution);
 * 2. 25/100 of the total number of issued voting stocks of the financial institution concerned; and
 * 3. 33/100 of the total number of issued voting stocks of the financial institution concerned.
 * (4) Where the Financial Services Commission refuses to grant approval under paragraph (3), it shall specify and notify such cause to the applicant within the period determined by Presidential Decree. 
 * (5) Procedures, methods and detailed standards of reporting in applying paragraph (2), and the qualifications for any person capable of holding stocks of a financial institution, the requirements and procedures for approval related to stockholding, and other necessary matters in applying paragraph (3) shall be determined by Presidential Decree in consideration of the possible risk of undermining the soundness of the financial institution concerned, the propriety of the size of assets and the financial standing of the financial institution concerned, the size of credits from the financial institution concerned, and the possible contribution to the efficiency and soundness of the banking business. 
 * (6) Where a investment company holds stocks of a financial institution with the approval under paragraph (3), the provisions of Article 81 (1) 1 (a) through (c) of the Financial Investment Services and Capital Markets Act shall not apply with respect to the investment company. 
 * [This Article Wholly Amended by Act No. 6691, Apr. 27, 2002]

Article 15-2 (Approval, etc. for Stockholding of Non-Financial Business Operators)
 * (1) Where a non-financial business operator intends to hold more than 4/100 of the total number of issued voting stocks of a financial institution, and he/she becomes the largest stockholder of the relevant financial institution (excluding local financial institutions; hereafter the same shall apply in this Article) or participates in the management of the relevant financial institution in a manner of appointing or dismissing its executives as prescribed by Presidential Decree, he/she shall obtain approval of the Financial Services Commission.
 * (2) When the Financial Services Commission grants approval pursuant to paragraph (1), where it is highly likely that the relevant non-financial business operator may exercise de facto influence over the major managerial matters of a financial institution in consideration of the shareholding status and composition of stockholders of the relevant financial institution, it may attach necessary conditions in connection with his/her participation in the management, etc. of the financial institution.
 * (3) Where a non-financial business operator should obtain approval of the Financial Services Commission under paragraph (1) due to unavoidable reasons prescribed by Presidential Decree, such as stock disposal of other stockholders of a financial institution, notwithstanding paragraph (1), he/she shall report the fact to the Financial Services Commission within the period prescribed by Presidential Decree.
 * (4) In cases under paragraph (3), a non-financial business operator shall take measures falling under any of the following subparagraphs within the period prescribed by Presidential Decree: Provided, That where unavoidable reasons exist, he/she may extend the period within the extent of six months with approval of the Financial Services Commission:
 * 1. Measures to obtain approval of the Financial Services Commission under paragraph (1);
 * 2. Measures not to make him/her fall under the requirements of paragraph (1), such as disposal of stocks held; and
 * 3. Measures not to make him/her a non-financial business operator, such as reduction of capital proportion of a non-financial business sector, from among the same persons.
 * (5) Where the Financial Services Commission does not grant approval referred to in paragraph (1), it shall notify the fact to the relevant nonfinancial business operator, specifying the reasons for the rejection, within the period prescribed by Presidential Decree.
 * (6) In applying paragraph (1), qualifications for a non-financial business operator who may hold stocks of a financial institution, requirements and procedures for approval related to stockholding, and other necessary matters shall be prescribed by Presidential Decree in consideration of conflict of interests which may occur between the interested parties, such as the relevant non-financial business operator and depositors of the financial institution, other stockholders, etc.
 * (7) In applying paragraph (3), procedures for and methods of reporting, and other necessary matters shall be determined and announced by the Financial Services Commission.
 * (8) Where a non-financial business operator violates paragraph (4), the non-financial business operator may not exercise his/her voting right on stocks held in excess of 4/100 (hereafter in this Article referred to as “limits”) of the total number of issued voting stocks of the relevant financial institution, and shall make them appropriate for limits without delay.
 * (9) The Financial Services Commission may order a person who fails to observe paragraph (8) to dispose of stocks in excess of limits by fixing a period not exceeding six months.
 * [This Article Newly Inserted by Act No. 9784, Jun. 9, 2009]

Article 15-3 (Approval, etc. for Stockholding of Private Equity Funds, etc.)
 * (1) Where a private equity fund or special purpose company (hereinafter referred to as “private equity fund, etc.”) falling under any of the following subparagraphs intends to hold stocks in excess of 4/100 of the total number of issued voting stocks of a financial institution, and it becomes the largest stockholder of the relevant financial institution (excluding local financial institutions; hereafter the same shall apply in this Article) or participates in the management of the financial institution in a manner of appointing or dismissing its executives as prescribed by Presidential Decree, it shall obtain approval of the Financial Services Commission:
 * 1. Where any person falling under any of items (a) through (c) of Article 2 (1) 9 is a limited partner holding stakes not less than 10/100 of the total amount of investment in the private equity fund, the relevant private equity fund company;
 * 2. Where the sum of the stakes in the private equity fund held by each affiliated company belonging to another enterprise group subject to the limitations on mutual investment is not less than 30/100 of the total amount of investment in the private equity fund, the relevant private equity fund company; and
 * 3. Where a private equity fund falling under subparagraph 1 or 2 acquires or possesses more than 4/100 of stocks or stakes of a special purpose company, or exercises de facto influence over the major managerial matters of the special purpose company, such as appointment or dismissal of its executives, the relevant special purpose company.
 * (2) Any private equity fund, etc. which intends to obtain approval under paragraph (1) (including approval under Article 15 (3); hereafter the same shall apply in this Article) shall satisfy all the following requirements:
 * 1. Requirements for executive officers of a private equity fund, etc.:
 * (a) The executive officer shall not, as a juristic person, be a specially related person of another partner or stockholder of the private equity fund, etc. where he/she serves as an executive officer or the management of the assets of which has been entrusted with; and
 * (b) The executive officer shall have capabilities of and experience in the management of assets and social credibility to the extent that he/she may preclude another partner or stockholder of the private equity fund, etc. where he/she serves as an executive officer or the management of the assets of which has been entrusted with from exercising influence over stocks or stakes which are assets of the relevant private equity fund, etc.; and
 * 2. Other requirements prescribed by Presidential Decree in consideration of the effect of the shareholding of a private equity fund, etc. on the soundness of the relevant financial institution.
 * (3) If necessary for confirming whether a private equity fund, etc. meets the requirements under paragraph (2) in the examination for approval under paragraph (1), the Financial Services Commission may request the private equity fund, etc. or an executive officer in charge of the management of its assets or such to provide it with the information or data prescribed by Presidential Decree, such as the articles of association of the relevant private equity fund, etc., terms and conditions of a contract concluded between its stockholders or partners.
 * (4) Where the Financial Services Commission does not grant approval under paragraph (1), it shall notify such fact to the applicant, specifying the reasons for the rejection, within the period prescribed by Presidential Decree.
 * (5) Article 15-2 (3), (4), (8) and (9) shall apply mutatis mutandis to cases where a private equity fund, etc. must obtain approval of the Financial Services Commission under paragraph (1) due to unavoidable reasons, such as disposal of stocks of other stockholders of a financial institution or such.
 * (6) When the Financial Services Commission grants approval pursuant to paragraph (1), where it is highly likely that the relevant private equity fund, etc. may exercise de facto influence over the major managerial matters of a financial institution in consideration of the shareholding status and composition of stockholders of the relevant financial institution and the composition of partners or stockholders of the relevant private equity fund, etc., it may attach necessary conditions in connection with its participation in the management, etc. of the financial institution.
 * (7) Procedures for and examination methods of approval under paragraph (1), detailed criteria for the requirements referred to in paragraph (2), and other necessary matters shall be prescribed by Presidential Decree.
 * [This Article Newly Inserted by Act No. 9784, Jun. 9, 2009]

Firms specializing in non-financial businesses are allowed to own up to 10 percent stakes in banks or bank holding companies, upon approval by the Financial Services Commission, but voting rights accompanying additional stakes beyond 9 percent are prohibited.

Foreign Ownership
Recently, foreign ownership at commercial banks has increased greatly, as the Korean government and the Korea Deposit Insurance Corporation have sold their stakes in Korean banks to foreign financial institutions as part of the restructuring of the financial industry that followed the 1997 Asian currency crisis.

Although at end-1998 KorAm Bank (한미은행) stood as the sole bank with its largest proportion of shareholders being overseas, after stakes in First Bank, KorAm Bank and Korea Exchange Bank (KEB) were purchased by foreign capital there were five Korean banks with foreign principal shareholders as of the end-June 2011.

Meanwhile, the entire stakes in Woori Bank are owned by Woori Finance Holdings Co., Ltd. (established March 2001), and those in Shinhan and Chohung Bank by Shinhan Financial Group Co., Ltd. (September 2001).

Regional Banks
In the case of local banks, domestic capital currently holds more stakes than foreign capital, since the ceiling on single ownership of block shares of local banks stands at 15 percent, higher than that commercial banks, and because foreign enterprises did not purchase stakes in those banks during the financial industry restructuring. Some shares in regional banks such as Kwangju Bank, owned by local enterprises, have decreased as they have been incorporated into financial holding companies.