Will Savings Bank Regulations Be Eased... Major M&A Boom Expected Early Next Year (Comprehensive)

Financial Services Commission Has Operated TF Since Early This Year... Regulatory Relaxation Measures Expected Within the Year
Small and Medium-Sized Savings Banks Facing Insolvency Crisis Likely to Actively Sell if Buyers Emerge

[Asia Economy Reporter Kangwook Cho] The possibility of market restructuring due to mergers and acquisitions (M&A) in the savings bank industry is increasing as early as the beginning of next year. Financial authorities plan to introduce regulatory easing 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 for small and medium-sized savings banks.

Financial Services Commission to Announce 'Savings Bank Development Plan' Including M&A Regulatory Easing

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 this plan will include easing measures for savings bank M&A regulations.

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 easing M&A regulations."

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. This is due to the widening gap and intensifying polarization between metropolitan and regional savings banks. Especially this year, regional savings banks have been unable to fulfill their roles due to the economic downturn in local areas caused by COVID-19.

Top 10 Firms’ Assets Account for Half of Total... Polarization Deepens

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, an increase of over 5 trillion won compared to the end of last year. This marks the first return to the 80 trillion won level since the large-scale suspension of operations in 2011 due to massive insolvencies that halved total assets. However, the top 10 firms located in the metropolitan area (7 in Seoul, 3 in Gyeonggi and Incheon) account for 46%, nearly half, of total assets. These top 10 firms accounted for more than 60% of the savings bank sector’s net income. The 42 savings banks located in Seoul, Gyeonggi, and Incheon accounted for nearly 86% of the net income in the first half.

Narrowing the scope to the top 5 firms, their net income in the first half was 330.7 billion won, accounting for 50.0% of the total. Last year, the top 5 firms’ share of net income was about 37.3%, showing a significant increase in just half a year.

Because of this, the savings bank industry has raised voices that seeking solutions to realize economies of scale through M&A before regional savings banks become insolvent is inevitable. It is known that many regional savings banks are willing to sell if there are buyers. 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.

Sale of 'Prime' JT Savings Bank Also Fails to Attract Bidders: "Excessive Regulations Are a Hindrance"

JT Savings Bank, which was previously put up for sale, failed to attract bidders in the main bidding round. This failure is interpreted as being due not only to concerns over its valuation but also to 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, strategic investors (SIs) such as JB Financial Group and Korea Capital, who were considered strong candidates, all withdrew, and only two financial investors (FIs), including the Hong Kong-based private equity firm Bank Street Private Equity, submitted bids, resulting in a disastrous bidding outcome.

The industry widely agrees that if regulations are eased 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 open the door for large savings banks to acquire small regional savings banks before they become insolvent," adding, "To comprehensively support large firms seeking growth and small and medium-sized firms facing management difficulties, easing M&A regulations must come first."

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