S.Korea to pave way for Internet-based banks

SEOUL, June 26 (Reuters) - South Korea is considering allowing the introduction of Internet-based banks to encourage competition and product diversity in the banking industry, a regulator said on Thursday.

The Financial Services Commission (FSC) said in a statement that technology development and growing access to the Internet had raised interest in the establishment of Web-based banks for cost savings and service differentiation.

An online bank, which the FSC calls an Internet primary bank, has no or very few operating offices and handles most of its business via the Internet or electronic means such as automated teller machines.

"We are studying the adoption of small specialised banks, in particular Internet primary banks, for consumers' convenience," the statement said.

South Korea is the world's most wired country, with a majority of households having access to broadband Internet.

Conglomerates and small start-ups tried to jointly set up Web-based banks in South Korea between 2001 and 2002, but cancelled the plans because of a lack of legislation supporting the business model.

The regulatory agency said it would work on details such as defining the extent of Internet banking businesses, cutting the amount of initial capital needed to set up Internet banks and how to help them secure customers.

Possible amendments to the law to support the plan would be submitted within this year, it added.

The FSC also is trying to loosen rules on the consumer finance sector, excluding credit card sales, by lowering entry barriers and allowing firms to raise their portion of lending to above half of total operations, while tightening monitoring.

The deregulation steps were one of the key campaign pledges by President Lee Myung-bak, in office for four months, to boost the financial sector and promote the country as a regional financial centre.

Lee also has pledged to speed up the privatisation of state-run banks and institutions, including Korea Development Bank and Woori Finance Holdings (053000.KS: Quote, Profile, Research, Stock Buzz).

(Reporting by Kim Yeon-hee; Editing by Jonathan Hopfner)