When discussing South Korea's four major financial holding companies, some view them as selfish organizations that generate significant profits primarily through interest margins. However, these financial holding companies should be seen as groups that own multiple businesses rather than a single entity. Each holding company encompasses various financial institutions, including banks, securities firms, credit card companies, and insurance providers, with over 10,000 skilled employees working in each bank. The average net profit of KB, Shinhan, Hana, and Woori, the four major financial groups, is 4.5 trillion won for 2025, prompting a reconsideration of whether this profit is substantial when viewed as a single group.
In the financial sector, the industry is often referred to as a capital-intensive industry. While this is understandable due to the nationwide branch and internet networks established, the general perception is that capital-intensive industries refer to sectors with large, visible production facilities, such as shipbuilding and steel. Therefore, it would be more accurate to describe it as a network industry.
The financial industry has undergone significant visible digital transformation. Online remittances and stock trading have become commonplace, and the expansion of digital currencies, such as stablecoins, has advanced the digitization of financial assets. However, in terms of AI, South Korea's financial sector is lagging behind the United States, which has entered a phase of large-scale industrial innovation. Companies like Mitsubishi UFJ, which is developing AI financial assistants in partnership with Google, highlight the challenges that lie ahead. It is crucial to remember that the future of the financial industry lies in data.
Policymakers often grapple with two key factors when examining specific industries: consumer protection (ensuring effective competition) and international competitiveness (achieving economies of scale). From the perspective of Michael Porter, a former Harvard professor known for his views on industry structure, South Korea's financial sector has a well-structured competitive landscape with numerous participants, a result of the painful consolidation of financial firms during the 1997 IMF crisis.
As is well known, the number of participating companies in an industry is vital for profitability. South Korea's currently thriving sectors, such as semiconductors, automobiles, shipbuilding, and home appliances, have grown into global companies thanks to restructuring during the IMF crisis, which enhanced their competitive scale. Maintaining an appropriate competitive system within industries is essential for consumer protection. However, the South Korean airline service industry is shifting from a competitive structure to a single large airline, undermining the competitive framework.
Ironically, South Korea's small land area has fostered dense industrial clusters that are advantageous for efficient manufacturing. Additionally, the country's geographically isolated characteristics have nurtured a unique corporate culture of 'thoroughness and speed.' The solar energy industry, which has low entry barriers, is likely to see only a handful of companies survive domestically. Similarly, the promising physical AI industry (robotics) may ultimately result in only a few companies remaining, given the low entry barriers and the nature of small-batch production.
In the initial public offering of SpaceX, South Korea did not receive any shares allocated, contrary to early expectations. This experience highlighted our lack of understanding of the norms of global financial markets and indicated that South Korea is not seen as a priority by them. One of the reasons for the 1997 IMF crisis was the insular nature of our financial sector, which was likened to a frog in a well, unaware of the international financial landscape. Is South Korea's financial industry clinging to a pure-blood ideology, distancing itself from global standards? The securities industry has seen many temporary high-ranking positions filled, and while there have been past failures in hiring high-level foreign experts, it can be argued that even a few successful hires that shake up the organization and introduce new perspectives can be considered a success. Successful South Korean companies have boldly scouted external talent to foster competition.
The South Korean financial industry is often described as a domestic industry, as most of its revenue and customers are generated within the country. While the industry has primarily benchmarked Japan for overseas expansion, long-term care insurance, and shareholder return strategies, it must now directly draw from the financial hubs. The financial sector is a regulated industry that requires oversight due to its direct connection to public interests, but excessive intervention by regulatory bodies may have hindered the adoption of new techniques and the exploration of overseas markets. Consumers are now seeking banks that meet their specific needs rather than sticking to their primary bank, underscoring the urgency for the introduction of innovative practices.
* This article has been translated by AI.
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