Savings Banks, Big M&A Boom Coming...? Regulatory Easing Becoming Visible

Financial Services Commission Operating TF Since Early This Year... Likely to Announce Regulatory Relaxation Measures Within the Year
Struggling Small and Medium Savings Banks Expected to Actively Sell if Buyers Emerge

[Asia Economy Reporter Kangwook Cho] The possibility of market restructuring due to mergers and acquisitions (M&A) within the savings bank industry is increasing as early as the beginning of next year. Financial authorities plan to introduce regulatory relaxation measures regarding savings bank M&A within this year. Amid the accelerating polarization between metropolitan and regional savings banks caused by the impact of the novel coronavirus disease (COVID-19), attention is focused on whether regulatory easing will open an exit route for small and medium-sized savings banks.

According to the financial sector on the 16th, the Financial Services Commission (FSC) plans to announce the "Savings Bank Development Plan," which has been prepared since early this year by a task force (TF), within the year. Initially, detailed measures were expected to be announced as early as the first half or by the third quarter at the latest, but the prolonged COVID-19 situation delayed the schedule. It is understood that the plan will include proposals to ease regulations on savings bank M&A.

A financial authority official said, "We have been reviewing overall matters such as expanding mid-interest loans using guarantee institutions, savings bank mergers, and branch establishment," adding, "Since the polarization of savings banks is intensifying, we will soon present improvement measures including regulatory relaxation on M&A."

Since January this year, the FSC Chairman Eun Sung-soo has held meetings with savings bank representatives and has been operating a TF for the savings bank development plan involving both public and private experts. The gap between metropolitan and regional savings banks has been widening, deepening the polarization phenomenon. Especially this year, due to the economic downturn caused by COVID-19, regional savings banks have been unable to fulfill their roles.

According to the Financial Supervisory Service, the total assets of 79 savings banks nationwide reached 82.6 trillion won in the first half of this year, increasing by more than 5 trillion won compared to the end of the previous year. This marks the first return to the 80 trillion won level since the large-scale suspension of operations due to massive insolvency in 2011, which halved total assets. However, the top 10 companies located in the metropolitan area (7 in Seoul, 3 in Gyeonggi and Incheon) account for 46% of total assets, nearly half. These top 10 companies accounted for more than 60% of the savings bank industry's net income. The net income of 42 savings banks located in Seoul, Gyeonggi, and Incheon accounted for nearly 86% of the total in the first half.

Therefore, the savings bank industry has raised voices emphasizing the need to seek solutions to achieve economies of scale through M&A before regional savings banks become insolvent. It is known that many regional savings banks are willing to sell if there is a buyer. However, currently, the same major shareholder cannot own or control more than three savings banks, and mergers between savings banks with different business areas are prohibited.

JT Savings Bank, which was previously put up for sale, failed to attract interest in the main bidding, which is interpreted as being due to concerns over its valuation, excessive regulations on savings banks, and negative outlooks on the industry. JT Savings Bank, which recorded a net income of 18.1 billion won last year, was considered a "prime asset" with total assets of 1.3897 trillion won as of the first quarter this year. However, all strategic investors (SIs) such as JB Financial Group and Korea Capital, who were considered strong candidates, withdrew, and only two financial investors (FIs), including the Hong Kong-based private equity firm Bank Street Private Equity, participated, resulting in a bidding failure.

The industry consensus is that if regulations are relaxed within this year, the savings bank M&A market is likely to become active as early as the beginning of next year. This is because, amid prolonged ultra-low interest rates, the preference for savings banks offering relatively high interest rates is increasing. The net income of all savings banks in the first half of this year was 684 billion won, a 14.5% increase compared to 597.6 billion won in the same period last year.

A savings bank official said, "It is necessary to allow large savings banks to acquire small regional savings banks before they become insolvent," adding, "To comprehensively support large companies seeking growth and small and medium-sized companies facing management difficulties, regulatory relaxation on M&A must come first."

This content was produced with the assistance of AI translation services.