Financial Services Commission: "Local Banks as Competitors to Commercial Banks"... Discussions on Strengthening Competitiveness

Regional Banks Request Improvements to Community Reinvestment Evaluation System and Loan-Deposit Interest Rate Spread Disclosure System

Kim So-young, Vice Chairman of the Financial Services Commission, is briefing on the launch of the 'Online One-Stop Debt Consolidation Loan Infrastructure' at the Government Seoul Office in Jongno-gu, Seoul, on the 30th. Photo by Yoon Dong-joo doso7@

The financial authorities are preparing measures to strengthen the competitiveness of regional banks. They have determined that, in order to break the oligopoly system in the banking sector, it is important not only to allow new entrants but also to enhance the competitiveness of existing players.

On the 31st of last month, the Financial Services Commission held the 10th working group meeting of the 'Banking Sector Management, Business Practices, and System Improvement Task Force' at the Gwanghwamun Government Seoul Office, chaired by Vice Chairman Kim So-young. During this meeting, measures to strengthen the competitiveness of regional banks were discussed.

Vice Chairman Kim stated, "Regional banks can become stable and practical competitors to commercial banks." She added, "It is true that regional banks are at a disadvantage compared to commercial banks in terms of scale and scope, but it is also important to further develop and differentiate the strengths of regional banks, such as relational finance utilizing regional networks."

She urged regional banks to develop financial products that can fill the 'financial gaps' left by existing commercial banks and to discover new business models through the convergence of financial and non-financial sectors. She also emphasized the need to activate collaboration, such as joint lending with internet-only banks.

At the meeting, regional banks submitted suggestions regarding the 'Regional Reinvestment Evaluation System.' This system was introduced in 2020 to encourage financial companies that receive regional deposits to support local economic growth.

Regional banks pointed out that even when a small number of branches operate in specific areas, they are subject to evaluation by financial authorities and inevitably receive 'insufficient' ratings.

In response to the request to "further subdivide the weighting in the regional reinvestment evaluation," the Financial Services Commission said it would review improvement measures. They also noted that regional banks, which mainly provide loans to small and medium-sized enterprises at relatively higher interest rates, face difficulties due to exposure to negative reputational risks during the disclosure process comparing interest rate spreads.

Regional banks requested, "Please find improvement measures such as excluding regional banks from disclosure requirements or disclosing separately by region, credit rating, and loan amount." They also conveyed opinions that "designation of innovative financial services utilizing regional branch networks and the enactment of a 'Special Act for the Promotion of Regional Banks' are necessary."

Vice Chairman Kim responded, "We will communicate more closely with regional banks so that they can play their role in promoting competition in the banking sector as a pillar of revitalizing regional finance."

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