'탈석탄' Trend in Local Government Treasury Selection

Chungnam Province, Incheon City, Gwangju City, etc.
Quick Steps Following the Announcement of Preferential Policies

[Asia Economy Reporter Kiho Sung] As ESG (Environmental, Social, and Governance) management emerges as a key issue, demands for 'coal phase-out' are intensifying in the selection of local government treasury banks. With local governments expressing their intention to take the lead in engaging in 'climate finance,' it is anticipated that climate change issues will become a signal affecting the banking sector's 'money war.'

According to the financial sector on the 12th, Shinhan Bank recently signed a business agreement with Incheon Metropolitan City to participate in resource circulation policies aimed at transforming Incheon into an 'Environmental Special City.' Earlier, in December last year, Incheon City, together with eight districts in the Incheon area, declared their participation in the 'coal phase-out treasury' policy.

The reason Shinhan Bank joined Incheon City's climate policy is closely related to the selection of the local government treasury bank. If selected as the local government treasury bank, it will be responsible for handling the cash management of the local government's taxes, government grants, various funds, and public officials' salary accounts. In the case of Incheon City, this means managing a budget of 12 trillion won.

Incheon City is preparing for the re-selection of its treasury bank next year, with Shinhan Bank, which has maintained the position since 2007, competing against challenger Hana Bank. Hana Bank has gained momentum by taking over one primary treasury account from Seo-gu, a district in Incheon, three years ago. Especially with Hana Financial Group's headquarters scheduled to relocate to the Incheon area in January 2024, fierce competition is expected.

Until now, the selection of local government treasury banks has been determined by the scale of contributions. When Seoul City's treasury bank was selected in 2018, Shinhan Bank was chosen as the primary treasury operator by promising to contribute more than 300 billion won over four years. Seoul City's annual operating budget reaches 32 trillion won. Moreover, as local governments have begun to consider coal phase-out and renewable energy investments as important criteria in treasury bank selection, these factors have emerged as another variable deciding the outcome.

Currently, Chungnam Province, Gwangju Metropolitan City, Ansan City, and Pocheon City have announced preferential policies for coal phase-out financial institutions in treasury bank selection. They have decided to reflect coal phase-out and renewable energy investment items in the evaluation criteria for selecting treasury operating financial institutions and are in the process of revising related ordinances. For example, Chungnam Province allocates 1 point each out of 100 points for coal phase-out and renewable energy items. Considering that less than 1 point difference can determine the outcome when selecting treasury operating institutions, 2 points is a significant score that could change the treasury bank. In Seoul City, the city council is also promoting a plan to reflect coal phase-out performance in treasury bank selection.

An official from the banking sector said, "The competition to attract local government treasury banks is mostly decided by a narrow margin," adding, "Since the competition involves budgets worth tens of trillions of won, the trend of coal phase-out in the banking sector is expected to accelerate further."

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