Concerns are deepening for regional financial institutions. Domestic economic stagnation and the sudden imposition of tariffs by the United States are shaking the foundational strength of local corporations. In particular, as the repayment ability of regional corporations decreases, nonperforming loans are emerging, leading to concerns that regional banks will reduce funding again from a soundness management perspective, resulting in a 'credit crunch.' In response, even the heads of major financial groups are seeking SOS from financial authorities.
According to the financial sector on the 25th, Bin Dae-in, chairman of BNK Financial Group, recently expressed the need for policies to revitalize the supply of regional finance to financial authorities through various channels. In formal settings, he proposed a program for policy funding to supply capital to small and medium-sized enterprises during a meeting with Financial Supervisory Service (FSS) Governor Lee Bok-hyun held in March of last year. It is reported that since then, the management of regional financial holding companies and regional banks have repeatedly conveyed the importance of support from the authorities to ensure smooth capital flow within the region.
Chairman Bin's calls for policy are interpreted as a message to address the soundness risk of regional financial institutions and to stimulate economic activity in non-capital regions. As of the end of last year, the average corporate loan delinquency rate for five regional banks (BNK Busan, BNK Gyeongnam, Gwangju, Jeonbuk, and Jeju) was 0.60%. In contrast, the average corporate loan delinquency rate for the five major banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup) was 0.40%, indicating that the delinquency rate of regional banks is 0.20 percentage points higher. The financial sector views the prolonged economic downturn over several years as leading to the weakening of regional corporations, which is reflected in the delinquency rates of regional banks.
This year, too, dark clouds have gathered over the business of regional corporations. The U.S. government has begun imposing tariffs on automobiles and steel this month, making the management difficulties of manufacturing small and medium-sized enterprises more apparent. According to the Ministry of SMEs and Startups, from Feb. 18 to this month’s 18th, there were 531 reports of export difficulties submitted to the tariff complaint center. Of these, 128 were related to tariffs, and 74 cases involving tariffs in the machinery and metal sectors included automobiles and steel, accounting for more than half.
Regional banks are particularly concerned about the tightening of local funding. As the capital capacity of region-based corporations has diminished, regional banks have restricted their funding, resulting in a lack of capital circulation in the regional economy. From the banks' perspective, they must maintain a certain level of soundness in accordance with directives from financial authorities. If the local small and medium-sized enterprises that make up a large portion of regional bank corporate loans begin to fall into arrears, regional banks will have no choice but to restructure their loan portfolios to focus on sound corporations. If even regional banks cut off funding in a stagnant economy, the business capacity of small and medium-sized enterprises will worsen, and the likelihood of existing loan defaults will simultaneously increase. This creates a vicious cycle where regional banks fail to fulfill their role as a supplier of local funds, leading to the decline of the regional economy.
Experts also emphasize that support from financial authorities is necessary for regional banks to serve as a cornerstone of the local economy. Lee Sang-won, a finance professor at Dong-A University, noted, "The lending capability of regional banks to local corporations has reached its limits," while adding, "Now is the last chance for regional economic recovery." The professor suggested that policies should be established, such as relaxing risk weightings for corporate loans considering regional industrial characteristics and creating funds in which regional banks participate under the leadership of the Industrial Bank.