Urging Introduction of
Tobin Tax

KDB Chairman Kang calls for stringent control of foreign exchange funds going in and out of Korea

Chairman Kang Man-soo of KDB Financial Group said the group will continue to look for M&As with other financial institutions if conditions are right during a media briefing on Sept. 29 at a hotel in Yeouido, Seoul.
Although the group's takeover attempt of Woori Financial Group is over, the group is always ready to jump into the fray to take over a financial firm either at home or abroad, explained officials of the group.
They also said the Korea Development Bank is ready to start KDBonline, a service for customers who want to open an account with the bank online. Customers with a KDB direct/HiAccount will receive 0.2 percent higher deposit interest rates coming to around 3.5 percent per annum and may deposit or withdraw money at any time with no charge, they said.
Chairman Kang, who also is a former Ministry of Strategy and Finance minister, called for commercial banks to more effectively use Korea's foreign exchange reserves in their overseas operations. The statement is surprising in light of the fact it contradicts Chairman Kim Seok-dong's urging of commercial banks to be more aggressive in securing foreign currencies from their overseas operations.
Kang, during an interview with local media, said during the 1998 financial crisis Korean commercial banks rushed to Hong Kong to secure foreign exchange funds and were called "beggars" by the Hong Kong media. This time, too, Korean commercial banks tried to borrow foreign currencies from foreign banks whose credit default rates are higher than theirs, resulting in higher borrowing costs.
He said commercial banks should borrow foreign currencies from the Bank of Korea, the central bank, since its foreign exchange reserves total around $300 billion ― about $100 billion higher than what the country needs. He also called for Korean businesses operating overseas to deposit their foreign exchange holdings in Korean banks overseas, like Japanese businesses do with overseas Japanese banks. He said Korean banks just cannot get away from their past habit of borrowing from overseas whenever a financial crisis visits, although the national foreign exchange holdings have increased to a far bigger level and Korea's financial prestige overseas has been greatly upgraded. This, Kang said, was because they have the mentality of a capital importing country.
"We have got to have the mentality of a country with a current account surplus," Kang said, which also means that Korean firms should undertake M&As overseas to further spur their growth.
Kang said foreigners call Korea "Asia's automatic teller machine," as they can easily make profits in turbulent futures and offshore foreign exchange markets even though share prices fell. "We have to introduce the Tobin tax like Brazil where a 6 percent tax is charged when foreign exchange funds are taken out or brought into the country," Kang said. The Korean government once entertained the idea of adopting the tax.
Kang added that he was once told by a former CEO of HSBC that the bank made enough profit during the 1998 financial crisis in Korea to cover all the losses the bank incurred in its operations in Asia, which shows how loose Korea's financial regulations have been. nw

He also called for Korean businesses operating overseas to deposit their foreign exchange holdings in Korean banks overseas, like Japanese businesses do with overseas Japanese banks. He said Korean banks just cannot get away from their past habit of borrowing from overseas whenever a financial crisis visits, although the national foreign exchange holdings have increased to a far bigger level and Korea's financial prestige overseas has been greatly upgraded.

Chairman and President Kang Man-soo of KDB Financial Group.

Photo on courtesy of KDB Financial Group