"Need to Resolve Polarization in Savings Banks" ... Public Guarantee System Should Be Linked

The 1st Forum on Financial Inclusion Held at Savings Bank Central Association Bank Hall
Discussion on Polarization and Improvement Tasks of Savings Banks
Kwon Daeyoung, Director of Financial Industry Bureau, "20% Increase in Savings Bank Loans Raises Concerns over Provisions"

Jae-sik Park, President of the Korea Federation of Savings Banks (fourth from the left), is taking a commemorative photo with the keynote speakers and panelists before the start of the 1st Savings Bank Community Finance Forum on the 11th. From the left: Kyubok Lee, Senior Research Fellow at the Korea Institute of Finance; Jong-wook Lee, Professor at Seoul Women’s University; Daewoong Kim, CEO of Welcome Savings Bank; Jae-sik Park, President of the Korea Federation of Savings Banks; Daeyoung Kwon, Director of the Financial Industry Bureau at the Financial Services Commission; Seungdeok Hong, CEO of Asan Savings Bank; Jaehyun Nam, Professor at Kookmin University; Minhwan Lee, Professor at Inha University.

[Asia Economy Reporter Song Seung-seop] Financial authorities have publicly urged savings banks to enforce stricter soundness management. This comes amid persistent concerns over potential insolvency due to COVID-19 financial support and other factors, with recent significant growth in loan volumes being highlighted as an issue.

On the 11th, Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission, attended a panel discussion at the Savings Banks Association's forum held at the Bankers Hall in Jung-gu, Seoul, themed "Current Status and Improvement Tasks of Polarization in Savings Banks." He stated, "It is necessary to note that the loan supply volume is the largest across all financial sectors. I hope the excessive parts will be reviewed and managed."

Director Kwon pointed out, "Banks have spent a lot on performance bonuses, but in the case of savings banks, there are concerns about provisions. Last year, due to COVID-19, fund supply increased by about 10%, but savings banks increased by 20% compared to the same period last year."

According to the Bank of Korea and the savings bank industry, last year, the loan amount of savings banks reached 77.4754 trillion KRW, increasing by 12.425 trillion KRW (19%) in one year. This is nearly double the previous year's growth rate of around 10%.

At the forum, there were claims that policy support such as smooth mergers and acquisitions (M&A) and rationalization of business area regulations are necessary to resolve polarization among savings banks caused by large savings banks concentrating their operations in the metropolitan area.

Nam Jae-hyun, Professor of Economics at Kookmin University, presenting a topic at the forum

Nam Jae-hyun, a professor of economics at Kookmin University who presented at the forum, said, "According to current business area regulations, all of the top 20 savings banks by assets are located in the metropolitan area, and 13 have multiple business areas, while the bottom 20 operate single businesses outside the metropolitan area. Savings banks with multiple business areas apply the mandatory loan ratio to all loans combined, so they can meet the requirements even if they concentrate lending capacity in the metropolitan area," he criticized. Professor Nam added, "Since the recently discussed allowance for mergers and acquisitions among savings banks will also apply mandatory loan ratios based on business areas, system improvements are necessary."

Low interest rate trends and regional economic downturns were also cited as factors exacerbating polarization among savings banks. Professor Nam explained, "With interest rates hitting bottom, regional savings banks do not have the capacity to offer high deposits," adding, "The decline of regional key industries and population decrease have worsened the business environment."

To address these issues, Professor Nam proposed linking savings bank loans with public guarantee systems as a solution. He argued that efforts such as regional credit guarantee foundations establishing savings bank-specific guarantee products are needed to enable regional savings banks to perform efficient lending operations.

In response, Director Kwon stated, "With digitalization, the concept of regions is disappearing, creating new survival challenges," and added, "For companies that find it very difficult to secure data personnel, rather than expanding business areas, specializing in a region and maintaining solid small-scale operations can also be sufficiently competitive."

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