The financial authorities decided to relax the acquisition and merger (M&A) criteria for the restructuring of savings banks, and it has been found that 9 savings banks meet the relaxed M&A criteria. Another 10 savings banks are close to the criteria.
On the 20th, the Financial Services Commission announced the "plan to enhance the role of savings banks" which includes relaxing M&A criteria. It has now been decided to include savings banks that received a grade 4 (vulnerable) assessment in the management evaluation within the last two years as eligible for M&A.
In particular, the criteria for inclusion in the "Gray Zone" will be relaxed, and M&A for savings banks belonging to the Gray Zone will be allowed. The financial authorities have managed savings banks with clear signs of deterioration by including them in the Gray Zone. The current criteria for inclusion in the Gray Zone are based on a Bank for International Settlements (BIS) capital adequacy ratio of less than 9% (less than 10% for total assets over 1 trillion won), but this will be expanded to a BIS ratio of less than 11% (less than 12% for total assets over 1 trillion won).
According to the savings bank industry on the 24th, among the 30 savings banks with total assets over 1 trillion won as of the third quarter of last year, six banks have met the new Gray Zone criteria with BIS ratios of less than 12%: Sangsangin (10.23%), Sangsangin Plus (8.49%), Pepper (11.83%), Goryeo (11.71%), JT (11.64%), and JT Chinhae (11.64%).
During the same period, five savings banks among those with total assets over 1 trillion won, which recorded a BIS ratio of 12%, barely escaped the Gray Zone. These banks include Akyuon, Daol, Baro, Smart, and OSB Savings Bank. If these savings banks see a 1 percentage point drop in their BIS ratio during the two years of relaxed criteria, they will be immediately included in the Gray Zone and become eligible for M&A.
Among the 49 savings banks with total assets under 1 trillion won, three banks meet the Gray Zone inclusion criteria (BIS ratio under 11%): CK, Must Three One, and Raon Savings Bank. Five banks have a BIS ratio of 11% under the same criteria: Dongyang, Woori, DH, Daewon Mutual, and Daewon Mutual Savings Bank.
In particular, Sangsangin and Pepper Savings Bank received a grade 4 assessment for asset soundness in their management evaluation last January and were included in the corrective measures. On the 19th, the financial authorities recommended managerial improvements for Sangsangin Savings Bank under the corrective measures, while they decided to defer corrective measures for Pepper Savings Bank. Raon Savings Bank received a recommendation for managerial improvement in December of last year.
Since the savings bank crisis in 2011, the financial authorities have strictly limited M&A to prevent the consolidation of savings banks. However, as the soundness of savings banks deteriorated due to the breakdown of real estate project financing (PF), M&A was allowed, expanding the business areas of metropolitan area savings banks to four regions. Among the 19 savings banks meeting or nearing the Gray Zone inclusion criteria, 8 are located in the metropolitan area, including Seoul, Gyeonggi, and Incheon. The remaining 11 are located in non-metropolitan areas, with Daegu, Gyeongbuk, and Gangwon having the highest count at 5.
The savings bank industry anticipates that more savings banks will qualify for M&A consideration when other conditions beyond the Gray Zone are factored in. An industry official noted, "The financial authorities allowing M&A for savings banks with a grade 4 or lower in asset soundness assessments over the past two years broadens the scope the most," adding, "Especially in small and medium-sized savings banks, even minor issues can significantly deteriorate soundness, with many cases receiving a grade 4. "
The reason the savings bank industry has entered restructuring is due to the deterioration of real estate project financing. Although savings banks increased PF loans from 2018, the market tightened due to the ‘Legoland Incident’ that started in 2022, and with the slowdown of the real estate market, defaults occurred. Savings banks sold off bad loans through property auctions and joint fund formation, and the scale of real estate-related loans decreased from 26 trillion won at the end of 2022 to about 13 trillion won at the end of last year.
However, last year, the delinquency rate for savings banks reached 8.52%, marking the highest level in nine years. During the same period, the household delinquency rate decreased by 0.48 percentage points to 4.53%, but the corporate delinquency rate soared by 4.79 percentage points to 8.52%. The proportion of loans overdue by three months or more, known as the non-performing loan ratio, rose from 7.75% to 10.66% during the same period.