[Why&Next] Savings Bank M&A Boom Cools Again... Prolonged Slump Inevitable Without Recovery of Soundness

Industry Turns Cautious After Collapse of OK, SangSangIn, and Pepper Mega Deals
Few Policy Options Like Lifting Regional M&A Restrictions
Restoring Soundness Seen as Key to Reviving Investor Sentiment

The failed merger and acquisition (M&A) of SangSangIn Savings Bank by OK Financial Group has dampened expectations for restructuring within the savings bank sector. The anticipated acquisition of SBI Savings Bank, valued at 900 billion won and the first such deal in four years, was seen as a signal of industry recovery, but the collapse of this deal has been regarded as a major setback. As policy support is unlikely, the M&A market is expected to remain cautious for the time being. While attention is focused on whether deals involving potential targets such as Acuon Savings Bank will be completed, there are also calls for urgent strengthening of the sector’s fundamental soundness.

Industry Stunned by Collapse of OK-led Mega Deal

Exterior view of the SangSangIn Savings Bank Bundang Headquarters. SangSangIn Savings Bank

According to the savings bank industry on August 4, the acquisitions of SangSangIn Savings Bank and Pepper Savings Bank, led by OK Financial Group, were considered rare mega deals.

Excluding deals involving asset and liability transfers (P&A) from the Korea Deposit Insurance Corporation following the large-scale illegal and insolvent savings bank incident in 2012 (the “savings bank crisis”), there have only been about five deals in the past 20 years with acquisition prices exceeding 100 billion won. After news broke on April 28 that Kyobo Life Insurance would acquire SBI Savings Bank for approximately 900 billion won, expectations in the industry rose further as the 300 billion won “OK deal” began to materialize. The largest deal to date was in 2013, when SBI Group acquired Hyundai Swiss Savings Bank for 1.4 trillion won, but that was immediately after the savings bank crisis. It has been extremely rare for a buyer to acquire a savings bank at a high price under normal circumstances.

OK Financial Group pursued deals of around 100 billion won for SangSangIn and around 200 billion won for Pepper. The SangSangIn deal fell through just before closing. While Pepper Savings Bank has not completely ended negotiations with OK Financial Group, it is reported that there are significant differences over the acquisition price.

An industry official stated, “At least OK, SangSangIn, and Pepper are all actively seeking other parties to continue with M&As, so the industry is somewhat relieved. However, there is considerable disappointment that if both the SBI and OK deals had been completed, it could have led to increased M&A activity. As a result, savings banks that are considered potential targets are now proceeding more cautiously rather than rushing to close deals.”

'Potential Targets' in Savings Banks Likely to Face Prolonged Negotiations

The collapse of the OK-SangSangIn deal is seen as a negative signal by both financial authorities and the industry. This is because the investment sentiment for not only the stakeholders of OK, SangSangIn, and Pepper, but also for other “potential targets” within the top 20 such as Acuon, JT, and OSB, may cool. While each deal depends entirely on due diligence and negotiations among stakeholders, most agree that momentum has been lost.

In particular, SangSangIn was under pressure to sell quickly, as the Financial Services Commission ordered the disposal of 90% of its shares (SangSangIn and SangSangIn Plus) in October 2023 due to issues with major shareholder eligibility. Despite actively pursuing a sale, the failed negotiations came as a shock. The fact that even OK Savings Bank, the largest in terms of assets as of the first quarter, failed to acquire SangSangIn makes it even more difficult for private equity funds, securities firms, or other potential buyers to acquire SangSangIn, which is another negative factor.

An industry official commented, “There are rumors that employment succession issues hindered the OK-SangSangIn deal. Whether it was employment succession or price disagreements, there is a general sense of caution to prevent the failure of individual deals from dampening investment sentiment across the entire sector. Nevertheless, the collapse of M&As between top asset-ranked banks is being received as a significant shock.”

Need to Replicate the Raon Case to Overcome the 'Gray Zone'

The industry does not expect much from policy support. On March 20, the Financial Services Commission announced a “Savings Bank Competitiveness Enhancement Plan,” which temporarily expanded the scope of M&A eligibility for two years. Among the changes, the criteria for classifying savings banks in the gray zone (those showing signs of insolvency) were relaxed from a BIS capital adequacy ratio below 9% to below 11% (and below 12% for savings banks with assets over 1 trillion won). This was a signal for large companies in the Seoul metropolitan area to quickly acquire struggling savings banks and lead sector-wide restructuring.

An industry official said, “The only policy more aggressive than the March plan would be the complete abolition of M&A regulations by business area, but that is a very distant and unrealistic idea. The prevailing sentiment is that savings banks cannot blame the system for the freeze in M&A activity.”

Ultimately, there is a view that the market will remain in a wait-and-see mode for some time unless soundness is restored. While there is a need to increase cases like the acquisition of Raon Savings Bank by KBI Kukin Industries?a savings bank that had received prompt corrective action (management improvement recommendation) and was classified in the gray zone?this is considered unlikely. According to the Korea Federation of Savings Banks, as of the first quarter, there are nine savings banks classified in the gray zone (JT Chinae, SangSangIn, OSB, Smart, JT, Goryeo, SangSangIn Plus, Dongyang, and Raon). Among these, Raon has the smallest assets (124.8 billion won). The KBI-Raon case was positively influenced by the fact that both companies are headquartered in Gumi, but the likelihood of such deals being repeated is extremely limited.

An industry official said, “Given that OK Savings Bank, the industry leader, failed to close the deal with SangSangIn after about eight months of due diligence, it is questionable whether there will be buyers for gray zone assets. For now, the key issue is how actively private equity funds, securities firms, and other external players will participate in M&A.”