The Financial Services Commission has launched a study to prepare plans for the development of the savings bank sector, including differentiated regulation based on the size of savings banks and easing regulations on corporate loans.
According to the financial sector on the 19th, the Financial Services Commission has recently selected the Korea Institute of Finance as the implementer of the "Research Project for Savings Bank Development" to redefine the role and establish development plans for savings banks.
The Korea Institute of Finance will research development plans for savings banks, taking into account polarization between large and small to medium-sized firms, changes in regional and demographic structures, and digital transformation.
The Financial Services Commission said that based on this study, it plans to prepare development plans, including restructuring the regulatory framework, to help savings banks establish a new position within the financial industry.
The savings bank sector expects that the development plans will include differentiated regulation for large and small to medium-sized firms and easing of regulations on corporate loans. In particular, there are high expectations for easing restrictions on operating areas.
Under the Mutual Savings Bank Act, savings banks can only establish branches within their respective operating regions. They are divided into two metropolitan areas, including Seoul and Incheon/Gyeonggi, and four regional areas: ▲Busan/Ulsan/Gyeongnam ▲Daejeon/Chungcheong/Sejong ▲Daegu/Gyeongbuk/Gangwon ▲Gwangju/Jeolla/Jeju.
Savings banks in the metropolitan area must lend more than 50% of their total credit supply to individuals and small to medium-sized enterprises within their operating regions, while those in non-metropolitan areas must lend more than 40%. Savings banks in non-metropolitan areas are struggling to maintain this ratio due to worsening local economies and declining populations.
As a result, the gap between savings banks in metropolitan and non-metropolitan areas is also widening. As of the end of last year, among 37 savings banks in non-metropolitan areas, only 6 (16.2%) had assets exceeding 1 trillion won, while 25 (59.5%) of the 42 savings banks operating in metropolitan areas had assets exceeding 1 trillion won.
The Financial Services Commission is reportedly considering easing operating area regulations solely for small to medium-sized firms in local areas and supporting large-scale operations through mergers and acquisitions.
Easing regulations on corporate loans is also being discussed. Savings banks primarily operate targeting mid-low credit individuals and small to medium-sized enterprises within their operating areas. With the prolonged economic downturn, both the financial authorities and the savings bank sector share the common view that new avenues must be found.
Currently, there are discussions about including loans to medium-sized enterprises in the total credit supply criteria solely for large savings banks. The proposal is to expand the criteria for total credit supply, which previously recognized only individual and small to medium-sized enterprise loans within the operating area, to include medium-sized enterprises. In this case, the relevant savings banks will have the capacity to engage in additional operations in other operating areas.
The Korea Institute of Finance recently suggested in a research report to provide opportunities to utilize corporate policy funds for well-performing savings banks with soundness management capabilities. This aims to assign them the role of supplying funds to mid-low credit small to medium-sized enterprises.
Meanwhile, the savings bank sector is facing a crisis due to large-scale insolvencies in real estate projects. Last year, 79 savings banks recorded a net loss of 397.4 billion won, marking two consecutive years of deficits. As of the end of last year, the delinquency rate recorded at 8.52% rose by nearly 2 percentage points compared to the previous year (6.55%), reaching the highest level since the 9.2% delinquency rate recorded during the fallout from the savings bank crisis in 2015.