Korean Banks consider acquiring mutual savings banks

The chairmen of Korea’s four major commercial bank groups indicated their intention to consider acquiring troubled mutual savings banks.

Such acquisitions would be negative for the stand-alone credit quality of the banking groups and their flagship subsidiaries as the groups would acquire entities with poor asset quality, according to Moody’s. The acquisitions may also raise questions about the ability of the major banking groups to act independently of regulatory pressure. For the MSBs, such transactions would be credit positive.


The chairmen’s comments followed a meeting during which they discussed financial market instability arising from MSBs now in trouble. The banking groups involved in the discussions included Hana Bank, Kookmin Bank, Shinhan Bank and Woori Bank.

 

The financial impact on the four groups, although negative, is unlikely to be significant, as the average asset size of the five largest MSBs is only around 1.7 per cent of that of the groups. The fair valuation of loan receivables and contingent liabilities will be key in determining the immediate financial impact, as such valuations will drive acquisition prices as well as the size of capital injections into the acquired MSBs. Structures and terms of acquisitions are pure supposition at this stage.