Incoming gov't urged to be cautious in setting up regional banks

The headquarters of BNK Busan Bank, one of the country's regional banks, is seen in this photo taken in 2019. Korea Times file

By Yi Whan-woo

While the incoming government of Yoon Suk-yeol is pushing to decentralize banking headquarters densely concentrated in Seoul in the name of balanced regional development, industry analysts are recommending a cautious approach, as regional banks are susceptible to economic risks in the regions where they operate.

They say that Seoul-headquartered banks, if they are relocated outside the nation's capital, may struggle with the downsides of the regional economies that are beginning to take a toll on provincial banks, rather than contributing to balanced economic growth nationwide.

The risks include the slump of backbone industries ― namely automobiles, shipbuilding and maritime shipping ― in the cases of Busan, Ulsan and South Gyeongsang Province in the country's southeast, which are home to many manufacturing businesses.

For Gwangju and North Jeolla Province in the southwest, plus Jeju Island, the declining population and departure of young people in search of jobs are posing challenges to regional banks that rely on loans to individuals and small business owners.

Concerns on these problems have arisen because President-elect Yoon has promised to move the state-run Korea Development Bank (KDB) from Seoul to Busan.

Yoon also said that relocating the KDB alone will “not be good enough,” adding that he will think about having other major banks as well as the Seoul branches of foreign lenders relocate to the country's southeastern port city.

On top of this, residents in the central provinces of North and South Chungcheong are calling for the establishment of a provincial bank being the only regions in the country with no provincial bank of their own for the past 24 years.

“Provincial banks are performing well at the moment, but this should not mislead people into thinking their business outlooks are bright,” an employee of a one such bank in the southeastern region said on condition of anonymity.

The six regional banks nationwide posted record earnings of 1.36 trillion won ($1.11 billion) combined in 2021, resulting from hikes in the benchmark interest rate and higher interest gains.

BNK Busan Bank reaped a net profit worth 402.6 billion won, while DGB Daegu Bank recorded 330 billion won in net profit, followed by BNK Kyongnam Bank with 230.6 billion won, Jeonbuk Bank with 182.9 billion won, Kwangju Bank with 196.5 billion won and Jeju Bank with 18.4 billion won.

These provincial banks, however, had a higher percentage than the four major banks ― KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank ― of loans with repayments being delayed for three months or longer, and therefore a high chance of defaults if the borrowers becoming insolvent.

In 2021, the default percentage stood at 0.33 percent for Kwangju Bank, 0.34 percent for BNK Busan Bank, 0.43 percent for Jeonbuk Bank, 0.49 percent for DGB Daegu Bank and 0.61 percent for BNK Kyongnam Bank.

The same figure for KB Kookmin Bank, the country's largest commercial bank, was 0.33 percent during the cited period, while Shinhan, Hana and Woori reported 0.27 percent, 0.26 percent and 0.20 percent, respectively.

“The data apparently hint at the underlying risks of the regional economy that can jeopardize regional banks,” another banking staff member said.

Regarding the call to set up a bank headquartered in the Chungcheong region, market observers said that the involved parties should take note of the rapidly-changing banking business environment at a time of digital transformation.

“A provincial bank will need to compete not only with major banks but also with mobile lenders that are capitalizing on their digital prowess to muscle into the banking business,” an industry analyst said.