Local Banks' Survival Strategy: 'Digital Bank' Gambit

Local banks have turned to digital banks to escape the swamp of poor performance due to regional economic downturns. As delinquency rates soar and performance is overtaken by internet-only banks, they have decided to expand loans nationwide through digital banks as a survival strategy.

Jeju Bank, a subsidiary of Shinhan Financial Group, has partnered with Douzone Bizon, which holds data on 3 million SMEs and small business owners, to propose a vision of a 'SOHO Specialized Bank' targeting the entire country. The strategic judgment is that by capturing the non-face-to-face SME and small business loan market two years ahead of commercial banks or internet-only banks, profitability can be enhanced.

The 'joint loan' launched by Gwangju Bank in partnership with Toss Bank last year is on the verge of surpassing 1 trillion won. As 'joint loans' establish themselves as a successful business model for local banks, alliances for joint loans between local banks and internet banks, such as 'Jeonbuk Bank and Kakao Bank' and 'Busan Bank and K Bank', are spreading.

According to the financial sector on the 27th, local banks' net income for the first quarter of this year has uniformly declined. BNK Busan Bank, the top local bank, saw its net income plummet by 31.6% in a year, BNK Gyeongnam Bank by 31.4%, Gwangju Bank by 8.6%, Jeonbuk Bank by 8.7%, and Jeju Bank by 33.2%.

The soundness indicators are the same. Busan Bank's non-performing loan ratio skyrocketed from 0.44% in the first quarter of last year to 1.10% in the first quarter of this year, and Gyeongnam Bank's jumped from 0.46% to 0.82% over the same period. Gwangju Bank's rose from 0.54% to 0.79%, and Jeju Bank hit 1.66%.

In response, local banks are seeking breakthroughs in digital banks. They believe that expanding loans nationwide through digital platforms will not only grow loan assets but also improve loan quality.

Jeju Bank has formed a task force of about 30 people to begin the transition to a digital bank. The goal is to establish a lineup of non-face-to-face corporate finance products by the first quarter of next year at the latest, providing tailored corporate loans to SMEs and small business owners nationwide.

A Jeju Bank official said, "In 2-3 years, the battleground for banks' corporate loans will be the SME and small business corporation market, and our goal is to capture this market 2-3 years in advance."

The joint loan supply amount launched by Gwangju Bank and Toss Bank in August last year, the first in the financial sector, is expected to surpass 1 trillion won next month. Joint loans are a representative win-win model that combines the financial power and credit product development and operation capabilities of local banks with the digital platform technology and customer accessibility of internet banks.

gogosing@fnnews.com Park Sohyun Lee Jumi Reporter