Growing Polarization in Savings Banks... "Mandatory Loan Ratio System Needs Revision" (Comprehensive)

Nam Jae-hyun, Professor at Kookmin University, "Credit Concentrated in Large Multi-Branch Companies in the Seoul Metropolitan Area"
Proposes Public Guarantee System and M&A Among Non-Seoul Savings Banks as Alternatives

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] Experts have pointed out the need to enhance the fairness of business area regulations to alleviate polarization among savings banks caused by the concentration of large savings banks' operations in the Seoul metropolitan area.

Nam Jae-hyun, a professor in the Department of Economics at Kookmin University, made this claim while attending as a presenter at the Low-Income Finance Forum held by the Korea Federation of Savings Banks on the 11th at the Bankers Hall in Jung-gu, Seoul, under the theme "Current Status and Improvement Tasks of Polarization in Savings Banks."

According to the current business area regulations, all of the top 20 savings banks by assets are located in the Seoul metropolitan area, with 13 holding multiple business areas, while the bottom 20 operate single business areas outside the metropolitan area. Savings banks with multiple business areas are subject to mandatory loan ratios applied to the total loans, so they can meet requirements even if they concentrate their lending capacity in the metropolitan area.

Professor Nam advised, "Even in the recent allowance of mergers and acquisitions (M&A) among savings banks, mandatory credit ratios will be applied to the business areas of the merged entities, so it is necessary to revise the system considering this."

Low interest rate trends and regional economic downturns were also cited as factors exacerbating polarization among savings banks. Professor Nam explained, "With interest rates at rock bottom, regional savings banks lack the capacity to offer high deposit rates," adding, "The decline of regional key industries and population decrease have worsened the business environment."

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

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

He elaborated, "Small and medium-sized savings banks will be able to provide mid-interest loans to small and medium-sized enterprises in difficult regions, and setting appropriate guarantee ratios will prevent moral hazard issues."

The recent partial approval by financial authorities of M&A involving non-Seoul area savings banks was positively evaluated. Professor Nam said, "Research results show that larger scale savings banks tend to have better efficiency and productivity," adding, "This is expected to enable a certain level of interest rate competitiveness and efficient financial intermediation for small and medium enterprises within the region."

However, given the many cases where major industry M&As have failed, it was pointed out that the government and regional savings banks need to work on narrowing the gap between purchase and sale prices. The government should actively provide incentives to companies acquiring regional savings banks, and the industry should avoid excessively high asking prices.

The event was attended by Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission; Lee Jong-wook, professor of economics at Seoul Women's University; Lee Min-hwan, professor of global finance at Inha University; Lee Kyu-bok, senior researcher at the Korea Institute of Finance; Hong Seung-duk, CEO of Asan Savings Bank; and Kim Dae-woong, CEO of Welcome Savings Bank, as panel discussants.

Kim Dae-woong, attending the panel discussion, suggested, "Many customers are rejected when applying for unsecured loans, but if savings banks gather these customers and provide them to regional small and medium savings banks, marketing costs could be significantly reduced."

Kwon Dae-young stated, "With digitalization erasing the concept of regions, new survival issues have emerged," adding, "For companies struggling to secure data personnel, rather than expanding business areas, specializing in a region and maintaining solid small-scale operations can be sufficiently competitive."

Lee Kyu-bok, senior researcher at the Korea Institute of Finance, expressed, "(For small and medium-sized savings banks) additional revenue methods could include guarantees, cooperation, or partnerships," emphasizing, "Ultimately, cooperation with savings banks must become easier."

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