Regional banks' declining offline business casts doubts over relocation plan of Seoul firms

Experts suggest law revision for regional banks to manage provincial coffers

By Yi Whan-woo

The country's regional banks are shutting down their branches over the declining profitability of offline services, which in turn is casting doubts over the feasibility of President Yoon Suk-yeol's plan to relocate Seoul-headquartered financial institutions outside the nation's capital.

Yoon has been singling out state-run policy lender Korea Development Bank (KDB) in his relocation plan but also hinted at pressuring other state-owned institutions to move their headquarters by saying, "Relocating only KDB will not be enough."

Whether the relocation will contribute to Yoon's goal of balanced regional development is not certain, considering demand for face-to-face financial services is slowing in provincial areas due to population declines and greater reliance on digital banking.

The Seoul-headquartered Korea Development Bank is targeted by President Yoon Suk-yeol in his plan to relocate state-owned financial institutions out of the nation's capital. Korea Times file

Busan Bank headquarters in Busan / Korea Times file

The unfavorable offline banking business environment is evident in the decreasing number of branches among five major regional lenders ― Busan Bank, Kyongnam Bank, Daegu Bank, Kwangju Bank and Jeonbuk Bank ― between 2020 and 2021.

Busan Bank saw its number of branches falling from 232 to 212 during the cited period, according to data from the Financial Supervisory Service. The figure diminished from 146 to 132 for Kyongnam Bank, 235 to 232 for Daegu Bank, 146 to 143 for Kwangju Bank and 97 to 92 for Jeonbuk Bank.

The situation is likely to get worse this year, with each of the five considering merging or shutting down more branches.

"We tried to close branches as little as possible despite constant population decline and a fall in the number of offline customers. But such tactics are being drastically revised because otherwise we can't withstand falling profitability over rapid digitalization," a regional bank official said on condition of anonymity.

Accordingly, experts urge the Yoon administration to be prudent in relocating the financial institutions.

"I agree on a need for balanced regional development and capitalizing on the financial industry to fulfill that goal," said Jung Ho-chul, a program coordinator at the Economic Policy Department of Citizens' Coalition for Economic Justice, a civic activist group. "But the approach being made by the government does not appear to be based on a thorough understanding of the regional financial industry."

He argued it is mostly state-run lenders, including Export-Import Bank of Korea (Eximbank) and Industrial Bank of Korea (IBK), that are being mentioned as potential financial institutions for relocation.

"It is believed the banks are targeted simply because the banking business is the most representative sector in finance. This idea is very sloppy and will lead to nowhere regarding the success of Yoon's plan," Jung said.

Another activist shared a similar view.

"The starting point for the relocation project should be understanding the unique roles of each financial institution and how their traits can harmonize with regions to which they can be relocated," said Lee Ji-woo, a coordinator at the Center of Economic and Financial Justice at People's Solidarity for Participatory Democracy.

As a possible solution for balanced regional development, Lee suggested "making sure consumers in rural areas will have more options to choose from in financial services."

Jung suggested enhancing regional banks' roles and figuring out the specific financial sector that foreign financial companies are interested in by region.

For instance, he noted the provincial governments select the banks to manage their primary and subsidiary coffers through a bid as stipulated by the law on provincial banking.

The list of criteria for a successful bidder includes credit ratings and financial soundness, regarding which regional banks find it tough to outpace the five major commercial banks headquartered in Seoul ― KB Kookmin, Shinhan, Hana, Woori and NongHyup.

As a result, it is the Seoul-headquartered banks that win the bids to manage massive amounts of money belonging to the provincial governments.

"Although not intended, the bid works against the regional banks, not for them, given the fact that they have relatively weak competiveness against much bigger rivals from Seoul," Jung said. "A revision of the law therefore is urgently needed for regional banks to better contribute to their respective economies."

Regarding foreign financial companies, he noted those from the United States and other Western countries are heavily concentrated in Seoul but it is not the case in Busan.

He explained that Chinese, Singaporean and other Asian companies find derivatives, securities and other marine industry-related financial products worth investing and therefore come to Busan, Korea's largest port city.

"You can see that it does not necessarily have to be banks to draw foreign investors to areas other than Seoul," Jung said.

Meanwhile, the regional banks are pushing to develop customized services to cope with the changing banking environment.

Busan Bank has launched a consulting service desk for senior citizens aged 65 or older, who still prefer offline banking services and have difficulty understanding a variety of financial terms.

Kyongnam Bank is keeping the number of ATMs while planning to introduce an online consulting service.

Jeonbuk Bank has formed a partnership with post offices so that the post offices can offer simple banking services, such as cash withdrawal and deposit and opening an account, for Jeonbuk Bank clients in addition to their customers.

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