As competition intensifies over which banks will serve as vault banks for major local governments, the Financial Supervisory Service has stepped in to curb excessive competition among banks. This move is interpreted as a message urging large-capital commercial banks to refrain from competing for Local Government vaults—the primary funding base of regional banks—by leveraging high cooperation project fees. The Financial Supervisory Service plans to closely examine the business viability of vault contracts during future regular bank inspections.
Lee Chan-jin, head of the Financial Supervisory Service, stated at a meeting with bank holding company presidents on the morning of the 23rd, "Concerns are growing about excessive competition among banks in recent bidding processes." He added, "Especially when banks with relatively superior capital strength win bids through cooperation project fee competitions, it may appear as unfair competition occurring on a tilted playing field."
The head further said, "Participation in vault bidding is a matter for each bank to decide autonomously," but urged them to consider not only profit-and-loss perspectives but also national challenges such as local fund circulation and balanced regional development when managing Local Government vaults.
He continued, "The Financial Supervisory Service will also carefully examine whether banks' expenditures on cooperation projects for Local Governments were determined after thorough analysis of their impact on bank soundness and profitability."
The Financial Supervisory Service is particularly concerned that if large-capital commercial banks continue to take over Local Government vaults traditionally held by regional banks, it could strain the liquidity of those regional banks. Securing a Local Government vault allows stable access to large-scale funds such as local taxes and various fiscal resources for four years, making it a crucial funding base for regional banks.
In fact, commercial banks are already targeting Local Government vaults using cooperation project fees as weapons. In 2018, KB Kookmin Bank outbid Gwangju Bank in the Gwangju Nam-gu vault bidding by offering higher cooperation project fees. Subsequently, Kookmin Bank contributed 1 billion won annually over three years as cooperation project fees, which is three times the amount (300 million won) that Gwangju Bank had contributed over the previous four years.
In the same year, Shinhan Bank also contributed 301.5 billion won under the guise of cooperation project fees to secure Seoul's vault contract worth approximately 51 trillion won. This exceeds twice the amount (140 billion won) that Woori Bank had contributed over three years as the previous operator. Although the Ministry of the Interior and Safety reduced the weighting of cooperation project fees in Local Government vault evaluation criteria to prevent excessive competition, it remains difficult to ignore their presence. A financial industry official stated, "Guidelines have long been issued to prioritize operational benefits such as interest rates rather than contribution amounts, and the influence of cooperation project fees has diminished," but added, "However, large-scale contributions still create a halo effect."
This year too, regional banks fought hard with commercial banks to retain their existing vaults. In the selection of the Gyeongbuk Provincial Council vault worth approximately 15 trillion won, KB Kookmin Bank made a new challenge. While Nonghyup Bank was selected for the first vault and iM Bank for the second vault, the score difference between iM Bank and Kookmin Bank for the second vault was only 2.9 points. This highlights the intensifying competition between commercial banks and regional banks over Local Government vaults.
Two more regions remain until year-end to select their vault operators. Following Gyeongbuk, there is a possibility that commercial banks will expand into vault operations in Jeollanam-do Gwangju and Sejong areas, so the head's remarks are also interpreted as a warning against the spread of such competition. The Jeollanam-do Gwangju Integrated Special City, with an annual fiscal scale of approximately 25 trillion won, began its vault bank selection process on the 17th. Competition between Nonghyup Bank and Gwangju Bank is expected, though commercial banks may also participate. Sejong City, with this year's budget of approximately 2.3 trillion won, will sign a contract for the next vault operator by November.
The Financial Supervisory Service plans to examine vault operations more closely in future regular bank inspections than it did under previous business viability assessments. Based on profitability analysis reports submitted to boards of directors before bidding, the agency will verify whether reverse margins occur when considering high deposit interest rates and cooperation project fees, and whether there are any issues with capital adequacy.
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