Financial regulators consider easing some M&A restrictions

[Photo by Yonhap]

South Korean financial regulators are contemplating whether to ease restrictions on mergers and acquisitions (M&As) for savings banks in Seoul and the surrounding areas, a move aimed at supporting the banks’ restructuring efforts. Under the financial rules, savings banks in the capital region can only be sold after financial authorities find them insolvent.

The regulators’ plan will see well-capitalized financial institutions take over cash-stripped savings banks with bad real estate project finance (PF) loans and rising delinquency rates before they become insolvent. Some financial holding companies are reportedly looking into acquiring savings banks to enhance their portfolios, while a few leading savings banks are considering acquiring others to increase their market presence.

According to multiple sources familiar with the matter on Sunday, the financial regulators are examining a proposal to lower the Bank of International Settlements (BIS) Capital Ratio threshold required to allow M&As among savings banks. The current regulations allow only metropolitan savings banks with a ratio below the standard set by the Financial Supervisory Service (FSS) at 10 to 11 percent to be acquired by another bank or third party. As of the end of 2023, metropolitan savings banks nearing the threshold for insolvency concerns include Pepper Savings Bank, with a ratio of 11 percent, JT Savings Bank Co., with 11.4 percent, and OSB Savings Bank, with 11.6 percent.

The proposal comes amid a recent decline in savings banks’ financial health indicators. According to the Korea Federation of Savings Bank, as many as 79 Korean savings banks posted a net loss of 154.3 billion won ($111.4 million) in the first quarter of 2024. The delinquency rate of the 79 savings banks hit 8.8 percent in the first quarter of 2024, up 2.25 percentage points from 6.55 percent at the end of the previous year.

“If these banks are put up for sale in the market when their financial health is already bad, it will be difficult to find a buyer,” a FSS official said.