Historically, great powers have always maintained robust financial systems. Finance has been a crucial infrastructure supporting national growth and global dominance. The strength that made 19th-century Britain the "empire on which the sun never sets" was "The City," while Wall Street played a significant role in the rise of the United States as a superpower in the 20th century.
When finance, the lifeblood of the economy, functions effectively, nations grow strong, businesses can invest freely, and citizens enjoy prosperous lives. So, what is the state of South Korea's finance in 2026? Is it effectively energizing the national and private economy? It is difficult to answer positively. While banks report profits in the tens of trillions of won annually and securities firms are achieving record performances, questions remain about their contributions to creating future growth engines for the national economy. The reality is that our finance has been complacent, focusing on real estate instead of innovative companies and domestic markets rather than global ones.
This is why there are calls to redefine the roles of capital markets and finance for South Korea's new century. The key lies in a paradigm shift. Experts consistently argue that money should flow into innovation and productive sectors instead of real estate, and from the "narrow well" of the Korean market to the global market.
◆ Finance Burdened by Real Estate
British economist John Maynard Keynes warned in his seminal work, "The General Theory of Employment, Interest, and Money," that if a nation's capital development becomes a byproduct of casinos, the economy cannot function properly. He cautioned against capital flowing into speculation rather than productive investment. In South Korea, the "casino" Keynes referred to has been real estate.
Typically, as economies grow and national income increases, assets should flow into corporate investment and financial markets. However, for decades, the opposite has occurred in South Korea. Household and corporate funds have concentrated more on the real estate market than on productive sectors. This has led to the labels "Republic of Real Estate" and "Republic of Apartments."
Finance has fueled this Republic of Real Estate. Banks have focused on real estate loans with solid collateral rather than assessing the growth potential of businesses. They have become comfortable with a stable profit structure centered on interest margins. Despite years of criticism that banks engage in easy operations, interest margin profits still account for 80-90% of bank earnings, with a significant portion coming from mortgage loans. This has led to criticism that finance acts as a pump amplifying real estate price increases rather than serving as the economy's lifeblood.
Securities firms have not fared much better. Until a few years ago, real estate project financing was a primary revenue source for the securities industry, and they still carry exposure to tens of trillions of won in project financing risks. The reality is that they have invested more resources in real estate finance than in innovative companies.
◆ K-Finance: A Frog in a Well
The finance structure burdened by real estate has also led to stagnation in South Korea's global competitiveness in the financial industry. Comparative indicators reflect this. In last year's IMD World Competitiveness Ranking, South Korea ranked 27th out of 69 countries. However, its financial sector competitiveness remained at 33rd. According to S&P Global Market Intelligence's "2026 World’s Top 100 Banks," no South Korean banks made it into the top 50, with KB Financial being the highest at 67th.
For over 20 years, banks have sought to expand into Southeast Asia, but they still have a long way to go to be regarded as global players. The securities industry, with a few exceptions like Mirae Asset, remains largely focused on the domestic market. The fundamental reason lies in their profit structure. Banks have become accustomed to collateral-based operations rather than evaluating technology and growth potential for investments. Securities firms have long relied on brokerage services. Their profits increase with trading volume and decline during market downturns. The recent bullish trend in the KOSPI has only temporarily obscured these structural limitations.
Moreover, we are entering an era where competition in future industries such as AI, biotechnology, robotics, quantum computing, and space is intensifying. Most future industries require substantial funding in their early stages, but the success of these investments is uncertain. Without sufficient venture capital to take risks, innovation and national competitiveness cannot be expected. The growth of Silicon Valley in the U.S. was not driven by the government but by venture capital and investment banks that invested in the future of innovative companies. Their investments, looking 20-30 years ahead, have yielded results like NVIDIA and Alphabet (Google). In this era of future industries represented by AI, South Korea cannot gain competitiveness with the same financial practices as before.
◆ Redirecting Finance
Ultimately, the foundation for a new South Korea must begin with the reconstruction of its financial infrastructure. Finance must redirect its flow from apartments to technology, from land to innovation, and from speculation to investment. Whether South Korea can leap to become a productive financial nation where funds flow into innovative technologies and future industries depends on this.
To achieve this, finance must evolve beyond merely being an industry that stores and lends money. It must transform into a strategic industry that nurtures the nation's future industries and determines the direction of growth. Banks need to shift from collateral-based assessments to evaluating technology and growth potential, while securities firms must evolve from mere intermediaries to capital providers supporting the growth of innovative companies.
Of course, this is not an easy task. It is a challenging process that has been attempted repeatedly by past governments but has often failed. However, it is not something that should be abandoned. Fortunately, we have a once-in-a-lifetime opportunity. After enduring a long period of the "Korea Discount," the South Korean stock market has entered an era of "Korea Premium." Once on the periphery, the South Korean stock market has now risen to the seventh largest in the world by market capitalization.
The government is also determined not to miss this rare opportunity for change. It has proposed various measures to redirect the flow of banks and capital markets from real estate to productive finance. By three years from now, it plans to inject 60 trillion won into venture capital through banks and securities firms and establish a 150 trillion won national growth fund.
Moreover, the transition to productive finance will positively impact the asset formation of citizens. Until now, South Korea has not fully established a structure where the growth of companies translates into increased assets for the entire population through capital markets. If finance fulfills its role, national pension funds, retirement funds, and long-term investment capital can flow into innovative companies, creating a virtuous cycle that leads to asset growth for citizens. This could also provide the younger generation with a "ladder of success" through finance rather than real estate (homes).
South Korea stands at a pivotal moment. Samsung Electronics and SK Hynix are leading the global semiconductor market, while K-defense is making waves worldwide. K-pop and other K-content are also dominating the global market. Now it's time for K-finance. We must immediately begin the transition to a financial paradigm that fosters innovation and the future, breaking free from the narrow confines of real estate and the Korean market.
* This article has been translated by AI.
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