Savings Bank M&A Regulations Slightly Eased... Industry Reacts Indifferently, Saying "Neither Here Nor There"

Savings Banks Lukewarm on Limited M&A Easing
BIS Ratios Already High, Regulations Strict, "No Major Impact Expected"
Industry Says "Regulatory Easing Must Come at the Right Time"

As financial authorities strengthen the soundness of savings banks, they have eased the long-awaited merger and acquisition (M&A) regulations, but the industry’s response has been lukewarm. The various conditions attached to M&A reduce its appeal, and the introduction of a buffer capital system is said to have little impact on the industry, which is already maintaining an international settlement bank (BIS) ratio exceeding the standard.

Industry Lukewarm About Limited M&A Approval

According to the financial sector on the 4th, the Financial Services Commission announced in its ‘2021 Financial Services Commission Financial Industry Bureau Work Plan’ held the previous day that M&A between savings banks will only be allowed for companies that comply with the BIS ratio standards before and after the merger and have not been sanctioned for three years.

Savings bank M&A has been considered one of the industry’s long-standing demands. However, many in the industry expressed doubts about whether the authorities’ goals of ‘autonomous restructuring and efficient fund intermediation’ would be achieved. This is because M&A is only possible between non-Seoul area savings banks, making it difficult for large savings banks to participate, and the business area expansion is limited to a maximum of two regions. The prohibition on owning three or more savings banks by the same major shareholder was also not included in the easing measures.

The requirement that the acquired bank must obligatorily supply 40% of total loans and 90% of deposits in the relevant region as loans was also cited as an obstacle. A savings bank official criticized, "For fund intermediation to become efficient through industry reorganization, it should be possible to increase loan amounts where human and material resources exist," adding, "While we understand the financial authorities’ intention to prevent regional financial contraction, it is true that the current M&A system makes it difficult to create synergy effects."

High BIS Ratios and Already Strict Regulations... Industry Says "Little Impact"

The industry consensus is that the strengthened regulations will have ‘little impact.’ The Financial Services Commission announced the introduction of a buffer capital system requiring savings banks to accumulate capital 2 percentage points higher than the existing BIS ratio. Currently, savings banks with assets over 1 trillion won must maintain a BIS ratio of 8%, and those with less than 1 trillion won must exceed 7%. With this new system, the savings bank industry must maintain a capital ratio of at least 9-10%.

The industry is currently accumulating capital with BIS ratios about twice the standard. As of September last year, the overall BIS ratio of the sector was 14.6%, and the top five savings banks (SBI, OK, Pepper, Korea Investment, and Welcome) had 13.54%. Among all 79 companies, only one had a BIS ratio below 10% (9.9%), regardless of capital size.

The major shareholder’s periodic eligibility review system and the option for financial authorities to immediately initiate reviews if necessary are viewed similarly. Since other sectors already have related systems and the savings bank industry is subject to various high-intensity regulations, the general view is that there will be no significant impact. Another savings bank official said, "Many businesses have not been able to proceed because regulatory easing by financial authorities was not timely," adding, "We have been subject to frequent large and small regulations before, so the atmosphere is that this is not considered very important."

Within the industry, there are calls for rapid and bold regulatory easing even if it means tightening soundness regulations further. Since savings banks operate under a positive regulation system with very limited permissible activities, there are also appeals that it is difficult to pursue digital and non-face-to-face innovation and diversify services.

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