Deposits Concentrated in Seoul Savings Banks... Regional Disparities Widened

Last Year, 84% of Loans by Savings Banks in the Seoul Metropolitan Area
Regional Savings Banks Show Slight Increase or Decrease
Industry Responds to Financial Authorities Considering Regulatory Easing with "Questionable Effectiveness"

[Asia Economy Reporter Song Seung-seop] Last year, the loan amounts of savings banks were concentrated in Seoul and the Incheon-Gyeonggi region, raising concerns that the original purpose of serving local communities and low-income citizens is being undermined. Although financial authorities are considering various deregulation policies, industry insiders say it is difficult to reverse this trend.

83% of Total Savings Bank Loans Concentrated in the Capital Area, Seoul Accounts for 58.4%

According to the Bank of Korea and the savings bank industry on the 6th, the total loan amount of savings banks last year reached 77.4754 trillion won. Of this, the capital area (Seoul, Gyeonggi, Incheon) accounted for 65.0738 trillion won, representing 83.9% of the total. Seoul alone accounted for 45.2842 trillion won, or 58.4%.

The proportion of loans in Seoul and the capital area relative to the total loan amount has been steadily increasing. Seoul's share, which was 56.3% nationwide in 2018, has increased by about 1 percentage point annually, while the capital area's share has risen by about 2 percentage points over the past two years.

This contrasts with the declining trend faced by savings banks struggling to maintain performance. Over the past two years, Seoul's loan scale grew by 12.7% and 20.6% year-on-year. Meanwhile, Jeonnam showed an 11.1% increase in 2019 but plummeted by 37.9% the following year. Gyeongbuk also saw a sharp decline from a 13.7% increase to -12.3%. The Gyeongnam region experienced consecutive decreases of 1.9% annually, shrinking by 1.9% and 21.8%, respectively.

The concentration in the capital area is prominent not only within the secondary financial sector but also compared to commercial banks. Last year, the Seoul share of credit cooperatives and mutual finance was 12.4% and 10.9%, respectively. Saemaeul Geumgo was also around 17.5%. Including Incheon and Gyeonggi, the figure remains in the 40% range. Even commercial banks, criticized for capital concentration in Seoul, have a Seoul loan share of about 38%, which is lower than that of savings banks.

Industry analysts suggest that 'economies of scale' are being realized. Large savings banks can bear the costs of digital transformation (DT), system infrastructure, and marketing driven by demand for non-face-to-face financial services, whereas small-scale savings banks without such capacity are limited to traditional relational sales, inevitably widening the gap. Among large savings banks, there are reports that non-face-to-face loan demand has rapidly increased through proprietary applications developed with substantial budgets.

Moreover, since large companies are based in the capital area, it is natural that loans are concentrated in Seoul. An industry insider stated, "If you combine the capital area with the Busan-Ulsan-Gyeongnam region among the six business zones, they account for 70% of the total population," adding, "Considering that the top seven savings banks are all based in the capital area and that half of the industry operates single or multiple business networks in the capital area, this is a natural outcome."

Financial Authorities Consider Deregulation, but Industry Questions Effectiveness

Financial authorities, recognizing the widening gap in asset size and competitiveness among savings banks, are considering deregulation measures on branch establishment and mergers and acquisitions (M&A). For large savings banks, they plan to strengthen soundness regulations based on size and business area, while easing excessive obligations imposed on small and medium-sized banks and allowing autonomous M&A within the sector for regional savings banks facing a shortage of borrowers.

In November, the Financial Services Commission announced its intention to ease business area expansion regulations for those meeting certain financial conditions through a legislative notice on amendments to the Mutual Savings Banks Act for the implementation of the 'Mutual Savings Banks Sound Development Plan.' It also mentioned switching to a prior notification system when establishing branches within the business area.

However, most industry insiders agree that the effectiveness is limited. This is because most large companies capable of M&A, including those in Seoul, are excluded. Among non-Seoul companies, only five have assets exceeding 1 trillion won, and they are reportedly not considering M&A. Additionally, despite the small volume, there is a heavy burden to handle 40% of loans within the business area.

An industry insider said, "Financial authorities have signaled that mergers among regional banks are acceptable, but it is uncertain whether this will actually happen," adding, "Even if five or six regional savings banks with capital of only a few hundred billion won merge, the resulting entity would still be smaller than one large capital area company, so the impact is questionable."

There were also opinions that incentives to increase loans and investments in regional areas are urgently needed. Another savings bank official said, "There are currently no incentives unless bold rewards are given to savings banks that execute loans in regional areas," adding, "Given the poor regional economy, if defaults occur mainly among regional companies that received loans, the banks would have to bear full responsibility, which is a heavy burden, to be honest."

He also added, "Increasing guaranteed loan products to encourage regional companies to actively use local savings banks is another possible approach."

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