The regional financial groups recorded unprecedented results last year, but they are expected to face deeper concerns this year. This is because the position of regional banks is anticipated to narrow due to the aggressive lending operations of commercial banks and the upcoming launch of the fourth internet-specialized bank.
According to the financial sector on the 11th, the cumulative net income of the three major regional financial groups (BNK Financial Group, DGB Financial Group, JB Financial Group) last year was 1.701 trillion won, an increase of 5.4% compared to the previous year (1.6136 trillion won). The net income of BNK Financial Group and JB Financial Group last year was 802.7 billion won and 677.5 billion won, respectively, an increase of 25.5% and 15.6% compared to the previous year, but the net income of DGB Financial Group decreased by 43.1% to 220.8 billion won due to a nearly 130% increase in the provision allocation for real estate project financing by securities firms.
The industry notes that the bad debt provisions related to real estate project financing at iM Securities have been continuing to decrease since the second quarter of last year, and that relevant risks have almost been resolved, meaning that this year could be different. If that happens, it is expected that the performance improvement trend of the three major regional financial groups, including BNK Financial Group and JB Financial Group, which recorded their highest-ever performance last year, will continue significantly.
However, concerns are growing regarding the actual performance improvements, such as loan assets, as the operating environment for banks, the core subsidiaries of regional financial groups, is becoming more difficult.
The balance of won-denominated loans for the five major regional banks increased by only 3.78% compared to the previous year as of last year. Among the banks, iM Bank, which transitioned to a commercial bank last year, had the highest rate at 5.91%, followed by Jeonbuk Bank at 5.37%, Gwangju Bank at 3.71%, Gyeongnam Bank at 3.53%, and Busan Bank at 1.54%.
Compared to the increase rates of won-denominated loans by commercial banks, which hover around 5% to 10%, there is a significant growth gap compared to regional banks. Last year, looking at the increase rates for corporate loans and household loans from the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori Bank), household loans increased by an average of 6.4% and corporate loans by an average of 7.7%. The balance of won-denominated loans at commercial banks is also about six times greater than that of regional banks.
This year, the situation is not looking easy. The financial authorities announced that they would increase loan supply to revitalize the regional real estate market, leading to predictions that commercial banks might start targeting regions again this year. In December of last year, Lee Bok-hyeon, head of the Financial Supervisory Service, noted at a conference with construction industry and real estate experts, "We aim to facilitate funding supply so that actual demanders and regional household loan demanders feel more at ease, especially in regions."
The anticipated launch of the fourth internet-specialized bank this year is also a threat to regional banks. According to the financial authorities' 'new review standards and procedures for internet-specialized bank licenses,' a new scoring criterion for 'regional financial supply' has been introduced. Applicants for the fourth internet bank must submit annual funding supply targets for non-capital area customers and specific implementation plans for the next five years, as well as soundness management plans, which raises expectations that competition between regional banks and internet banks will intensify.
A representative from a regional bank stated, "While it is true that regional banks must compete against commercial banks and internet banks, including the fourth internet bank, they are actively expanding their activities to broaden their customer base, including increasing collaboration with internet banks and fintech companies."