South Korea’s major conglomerates with financial unions from Monday have come under tougher non-binding capital base and management risk control rules.
The Financial Services Commission on Monday announced the new set of guidelines will apply to chaebol entities owning financial units. Korean industrial conglomerates are banned from running banks and lenders, but are allowed to operate insurance and other asset companies.
The rule is aimed to fend off risk from non-financial sector spreading to the financial sector.
A conglomerate holding more than 5 trillion won ($4.7 billion) in financial assets and operates two or more non-banking financial businesses including credit, insurance and financial investment is subject to the new rule. This means that financial units of the country’s five family-owned chaebols - Samsung, Hanwha, Hyundai Motor, DB and Lotte - as well as two non-banking financial conglomerates - Kyobo Life Insurance Co. and Mirae Asset Financial Group - will fall under stricter oversight.
They face higher capital requirements - equivalent to the standards imposed to financial holding groups - to have enough ammunition against risks from spillover from non-financial sister companies.
Currently, each financial unit is independently subject to requirements on debt and capital reserves, but the new rules require comprehensive management risks as a group.
The new guidelines can force the groups to expand their capital or sell their stakes in subsidiaries to reduce risk exposures.
The new guidelines to be made into a law in the second half to go into legal effect from next year will be most hard on Samsung Group due to Samsung Life Insurance’s bulky stakeholding in Samsung Electronics.
Samsung Life Insurance and Samsung Fire & Marine Insurance hold a combined 29 trillion won worth shares in Samsung Electronics.
By Kim Dong-eun and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]