Financial Institutions in Honam Region Closing One After Another... Red Alert for Local Economy

12% Decrease in Bank Branches Over Five Years Since COVID-19
Closures Continue Amid Economic and Real Estate Downturn
Trust Companies Also Withdrawing Due to Declining Profitability
"Onset of Local Extinction... Authorities Must Take Action"

As the prolonged economic downturn continues in the Honam region following the COVID-19 pandemic, the number of bank branches closing their doors has been steadily increasing. In particular, with the real estate market worsening, even regional headquarters of trust companies are showing signs of withdrawing, raising serious concerns for the local economy.

According to the Financial Supervisory Service's Financial Statistics Information System as of December last year, there were 409 bank branches in the Gwangju, Jeonnam, and Jeonbuk regions (155 in Gwangju, 254 in Jeonnam and Jeonbuk), a decrease of 60 branches (12.7%) compared to 469 in 2019.

The bank branches that mainly closed in the region were mostly among the four major banks (KB Kookmin, Shinhan, Hana, Woori). The four major banks operated 141 branches in 2019, but this number dropped to 108 by the end of last year. Most of the closed branches in the Honam region belonged to these four major banks. During the same period, Gwangju Bank closed two branches, and Jeonbuk Bank, a subsidiary of JB Financial Group, closed 12 branches.

This reduction in the number of bank branches is analyzed as a result of the prolonged regional economic downturn following the COVID-19 pandemic in 2020. As deficits per branch increased significantly, each bank sought to improve cost efficiency by reducing the number of branches and cutting operating expenses.

Especially in the Honam region, the number of bank branches was already insufficient compared to the population distribution, but with a further decrease of over 10% in the past five years, there is growing concern about the deterioration of local residents' access to financial services.

Along with this, regional trust companies are also showing signs of withdrawal amid the nationwide real estate market slump.

On the 14th, a notice stating that the Won Asset Trust Honam Regional Headquarters will relocate as of May 1 was posted in front of the entrance. Photo by Min Chanki

Woori Asset Trust's Honam Regional Headquarters, a real estate trust company located in Gwangju, has decided to relocate to Daejeon as of the 1st of next month.

As of the fourth quarter of last year, the combined net losses of 14 major domestic trust companies reached approximately 405 billion won. Ten companies, including Shinhan Asset Trust, Mugunghwa Asset Trust, Woori Asset Trust, Kyobo Asset Trust, KB Real Estate Trust, Korea Investment Real Estate Trust, and Korea Land Trust, recorded losses for the quarter.

The main cause is the prolonged slump in the real estate project financing (PF) market due to high inflation and high interest rates, which has led to growing insolvency, especially in responsibility-completion type management land trusts. In this structure, if the construction company fails to complete the project within the promised period, the trust company, which acts as a guarantor, assumes all financial responsibilities, including financing costs.

The industry analyzes that as the number of construction companies unable to make payments increases, the impact is spreading to trust companies.

An industry insider said, "The real estate market downturn has continued for several years, and the overall business performance of the trust industry has deteriorated," adding, "In cases where corporate bonds or loans are needed, companies without support from their parent companies are being forced to raise funds at high interest rates, even if it is unfavorable."

As financial institutions in the Honam region continue to decrease, concerns are rising that access to essential services for local residents will become increasingly difficult.

Hwang Jaehee, Professor of Economics at Chonnam National University, said, "A vicious cycle is repeating as the number of financial institutions decreases due to population decline and economic stagnation, making it difficult for remaining residents to access services," adding, "In particular, since the elderly have a demand for offline branches, measures are needed to ensure access to financial services."

There are also voices warning that if financial institutions close branches due to lack of profitability, the disappearance of local communities could accelerate even further.

Kim Inman, Director of the Kim Inman Real Estate Economic Research Institute, emphasized, "Ultimately, trust companies are withdrawing from the region due to insufficient business profitability in real estate and other sectors, which will inevitably shrink the local construction industry and reduce future supply volumes," adding, "Authorities should recognize that this phenomenon is not a temporary real estate slump, but rather the onset of local extinction, and prepare countermeasures accordingly."