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M&A of Savings banks Subdued even if sales pour out

Recently, there is a growing prospect that the sale of savings banks, which are put up for sale in the M&A market, will not be carried out smoothly. It is difficult for other savings banks to take over due to the recent sluggish performance of the entire savings banking industry, and large financial holding companies and private equity funds (PEFs) are not showing much interest.

The Financial Services Commission eased regulations in July to allow M&A between savings banks except for the Seoul metropolitan area as more savings banks have deteriorated their financial structure this year. Industries point out that regulations on the acquisition of savings banks in the metropolitan area should be further eased in order to revitalize the autonomous restructuring of the financial market through M&A.

◇ Hanwha for Sale of Imaginators... "6th place" Acu Ondo is likely to start selling

According to an official from the investment banking (IB) industry on the 17th, Hanwha Group has been pushing to sell its affiliate Hanwha Savings Bank since July. Hanwha reportedly contacted some PEFs to sound out its intention to sell them after conducting a demand survey on candidates for the acquisition.

Sangsangin Savings Bank is also likely to be up for sale soon. This is because the Financial Services Commission voted on the 4th to sell shares of major shareholders to Sangsangin Savings Bank and Sangsangin Plus Savings Bank.

Two savings banks affiliated with Sangsangin were severely punished by the Financial Services Commission in 2019 for falsely reporting the mandatory credit ratio and conducting a formal public sale to allow major shareholders to acquire convertible bonds at low prices. The Financial Services Commission ordered the sale after the two banks failed to fulfill their order to meet the eligibility of major shareholders in August.

Acuon Savings Bank, which ranks sixth in the industry by asset size, is also expected to be put up for sale in the M&A market soon. Accuon Savings Bank is the only PEF-owned savings bank among the top 10 savings banks in Korea. Bearing PEA, a Hong Kong-based fund that acquired Accuon in 2019, is in its fifth year of acquisition this year, and the sale is expected to begin in earnest next year.

◇ Financial holding companies, private equity funds, and savings banks are being shunned

Sales continue to increase in the market, but there are no significant candidates for acquisition. According to an IB industry official, Hanwha Savings Bank has already been sold for three months, but it has not received any intention to take over from PEF and others who contacted it.

Financial holding companies are considered to be interested in acquiring savings banks in the M&A market. In particular, Woori Financial Group has been mentioned as one of the leading candidates for acquisition as there are no savings banks operating in Seoul and the metropolitan area, unlike its competitors such as Shinhan, KB and Hana.

Savings banks have been suffering from real estate PF insolvency this year. Poor financial structure is cited as a reason why candidates for acquisition turn a blind eye to the M&A market. /Graphic = Son Minkyun

Savings banks have been suffering from real estate PF insolvency this year. Poor financial structure is cited as a reason why candidates for acquisition turn a blind eye to the M&A market. /Graphic = Son Minkyun

However, Woori Finance has shown no interest in acquiring savings banks. Woori Financial Group Chairman Lim Jong-ryong drew the line at a recent event, saying, "We will pursue the acquisition of securities firms, but there are no plans to acquire other non-banking companies." In the case of Woori Financial Group, insurance companies do not have affiliates other than securities companies, so savings banks, which are much smaller in assets and exposed to various financial risks such as poor real estate project financing, are likely to be pushed to the next rank.

An official from the financial sector said, "Most savings banks are experiencing the risk of poor real estate PF, and commercial banks have recently been struggling in business as they compete for deposit interest rates." "PEF, which has to compete within five years after the acquisition, is also turning to the acquisition of insurance companies rather than savings banks with low growth potential and high risk of insolvency," he added.

◇ "We need to lower the barriers to acquiring banks in Seoul and the metropolitan area."

In the financial market, some argue that in order not to repeat the massive bankruptcy of savings banks in the early 2010s, M&A should be activated to provide breathing room for autonomous restructuring in the market. To this end, additional regulations should be eased so that the same major shareholder can own savings banks in the metropolitan area as well as provinces.

Currently, savings bank goodwill is divided into two in the metropolitan area (Seoul, Incheon, and Gyeonggi) and four in the non-metropolitan area (Busan, Ulsan, Gyeongnam, Daegu, Gyeongbuk, Gangwon, Gwangju, Jeolla, Jeju, Daejeon, Sejong, and Chungcheong). The same major shareholder owns only three savings banks, and mergers of banks with different goodwill are prohibited. Financial authorities lifted regulations in July to allow the same major shareholders to own up to four, but the target area was limited to non-metropolitan areas.

Hanwha Savings Bank and Sangsangin Savings Bank have goodwill in Incheon and Gyeonggi Province. Acuon, which is expected to begin selling as early as next year, has Seoul as its goodwill.

An official from the savings banking industry said, "If interregional M&A regulations are lifted, not only financial holding companies but also other savings banks seeking to expand and expand their business networks are likely to enter the acquisition race."

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