Regional banks, established in 1967 under the Park Chung-hee administration to stimulate local economies and support regional businesses, now face critical limits amid economic slowdown and changing financial environment. As they approach their 60th anniversary next year, experts warn these institutions stand at a crossroads for survival under the dual burden of slowing growth and deteriorating asset quality.
According to the Financial Supervisory Service on January 9, total assets of the four major commercial banks—KB Kookmin, Shinhan, Woori, and Hana—grew from 1,011 trillion won at the end of December 2010 to 2,527 trillion won at the end of September last year, an increase of more than 1,500 trillion won over 15 years. During the same period, total assets of regional banks including BNK Busan, BNK Gyeongnam, Gwangju, JB Jeonbuk, Jeju Bank, and iM Bank (formerly Daegu Bank) grew from just 124 trillion won to 324 trillion won.
While regional banks more than doubled their assets in percentage terms, the absolute gap is stark. As the four major commercial banks added over 1,500 trillion won, total growth for all regional banks remained at approximately 200 trillion won. The asset gap between commercial and regional banks widened from 887 trillion won at the end of 2010 to 2,203 trillion won by September last year.
The disparity becomes even clearer when comparing individual banks. As of September last year, total assets of all regional banks combined amounted to just 58% of Woori Bank's 558 trillion won—the smallest among the four major commercial banks. Woori Bank alone added approximately 320 trillion won to its assets from 239 trillion won at the end of December 2010.
Annual asset growth rates show regional banks maintained relatively high growth of 8-10% from 2010 to 2016 following the global financial crisis, but momentum declined in the late 2010s. Growth plunged to 3.8% in 2017 and has generally remained in a low-growth phase of around 5% despite fluctuations.
The critical concern is that regional bank delinquency rates have recently exceeded 1% as local economies deteriorate rapidly. In the banking sector, delinquency rates above 1% are generally considered a warning signal. As of the end of December last year, Jeonbuk Bank's delinquency rate reached 1.46% and Jeju Bank's climbed to 1.6%. Other regional banks including Gyeongnam and Gwangju are also experiencing rapid increases in delinquency rates, adding to management burdens. Commercial banks' delinquency rates are also rising but remain at an average of around 0.3%.
"Regional banks have high exposure to loans for local SMEs and self-employed businesses, making them immediately vulnerable to asset quality deterioration," a banking industry official explained.
Compared to commercial banks, which continue to post stable earnings improvements, regional banks show stagnant or volatile profits. The four major commercial banks posted combined annual net profit of 13.99 trillion won last year, up approximately 5% year-on-year and a record high.
In contrast, three of six regional banks recorded annual net profits in the 200 billion won range, while Jeju Bank posted just 13.9 billion won. Gyeongnam Bank's net profit actually declined by 17.4 billion won. Busan Bank led with net profit in the 400 billion won range, but even the combined profits of all regional banks are difficult to compare with a single commercial bank.
Industry analysts attribute the erosion of regional banks' growth momentum to a combination of factors: regional economic stagnation, the spread of digital banking, and the emergence of internet-only banks.
"At this rate, all of us will end up being acquired through M&A," warned an official at a regional bank.