[Regional Finance Survival Strategies]②Should Korea Follow Japan's Precedent of Successful Survival?... "Independent Capabilities Are Key"

Since the 2000s, Japanese Banks Have Scaled Up through Alliance-Based Holdings and Mergers
Cases of Survival through Independent Competitiveness and Strategic Collaboration
Korea’s Regional Banks Have Strong Local Representation... Survival Strategi

There is a country that experienced population decline and regional economic stagnation before Korea did: Japan. Japanese regional banks have sought survival through mergers and alliances, often serving as benchmarks. The reason why Align Partners proposed a federation-type holding company system to JB Financial Group and BNK Financial Group is based on the judgment that a similar case has already emerged in Japan, demonstrating the feasibility of success.

However, some point out that, unlike in Japan, Korean regional banks are strongly rooted in distinct regions such as Yeongnam and Honam, which could spark local conflicts over the location of the holding company or management control. Risks that may emerge during organizational integration are also cited as drawbacks. As a result, there are increasing calls to first strengthen internal competitiveness in line with the realities of Korea.

Japanese Regional Banks: Mergers and Alliances to Scale Up

The case that Align Partners referred to when calling for a merger between the BNK Financial Group, which operates in Busan, Ulsan, and Gyeongnam, and the JB Financial Group, based in Honam, is the Fukuoka Financial Group (FFG)—Japan’s largest regional financial group, formed by the alliance of Fukuoka Bank, Kumamoto Bank, and others.

Following the collapse of Japan's asset price bubble in the 1990s and regional population decline, regional financial companies grew increasingly concerned in the 2000s—not only was overseas and wide-area expansion difficult, but even maintaining their existing profit base became a challenge. In response, some regional banks in Japan chose to establish holding companies, integrating their platforms while operating independent brands under a "federation-type holding company" model. Others opted for complete mergers, uniting brands and platforms into a single entity.

FFG and Tokyo Kiraboshi Financial Group are cited as leading examples of a federation-type holding company and a complete merger, respectively. Fukuoka Bank in Kyushu and Kumamoto Bank in Kumamoto launched their joint holding company, FFG, in 2007 through a share transfer. Later, they acquired Shinwa Bank and Juuhachi Bank in Nagasaki Prefecture, combining the two to create Juuhachishinwa Bank.

FFG retained the regionally trusted names of its constituent banks while integrating IT, funding, and branch and back-office work under a single holding company platform, thereby improving efficiency and reducing costs. When FFG was established in 2007, its consolidated total assets stood at 9.36 trillion yen (approximately 82.7452 trillion won). By the first quarter of this year, total assets had grown 3.59 times to 33.5595 trillion yen (about 296.676 trillion won) over a span of 19 years. Since 2018, it has maintained its position as Japan’s largest regional financial group by total assets. This federation-type holding company model has also influenced other regional bank integrations, such as the Meibuki Financial Group—established by Joyo Bank of Ibaraki Prefecture and Ashikaga Holdings of Tochigi Prefecture.

By contrast, Tokyo Kiraboshi Financial Group—the joint holding company created by Tokyo Tomin Bank and Yachiyo Bank in 2014—grew through complete mergers. In 2016, it made Shinkin Tokyo Bank a wholly owned subsidiary, and in 2018, merged the three banks into Kiraboshi Bank. In 2020, it unified the IT systems, resulting in annual cost savings of about 2.5 billion yen (221 billion won). By optimizing branch-in-branch layouts, it also reduced the number of duplicate branches by around 30%.

Prior to the merger, the three banks’ annual expenses totaled 61.8 billion yen (5.469 trillion won); through the merger, approximately 10 billion yen (885 billion won) was cut, reducing the cost-to-income ratio to 60.05%. Kiraboshi Bank’s total assets increased from 5.64 trillion yen (49.919 trillion won) at the time of its 2018 merger to 7.3173 trillion yen (64.7647 trillion won) last year. Net profit also rose from 1.8 billion yen (159 billion won) in 2018 to 42.36 billion yen (3.749 trillion won) last year.

Some observers believe that the federation-type holding company integration proposed by Align Partners could mitigate legal and inter-corporate conflicts that may arise during physical mergers. Notably, given that BNK Financial Group’s total assets amount to around 161 trillion won and JB Financial Group’s to 73 trillion won, a combined group would create a financial group with total assets of 234 trillion won—bolstering its ability to compete with nationwide commercial banks. Han Jaejun, Professor of Global Finance at Inha University, forecast, “Since their areas of operation are different and overlap is less of a problem, scaling up by integrating the two could reduce costs and strengthen the network.”

The Korean Situation Differs: "Strengthen Internally First"

There are substantial arguments that the differences between Japanese and Korean regional finance, starting with regional representation, make it difficult to benchmark Japan directly. In a federation-type holding company, since each brand and branch network is maintained, it can be difficult to fully realize cost savings through personnel or branch consolidation. There is also potential for local conflicts over the management policies of the holding company.

Japan has a total of 95 regional banks—61 first-tier and 34 second-tier institutions. In each of Japan’s 47 prefectures (equivalent to Korea’s metropolitan autonomous entities), there is at least one regional bank, meaning individual banks’ regional representation is relatively weak. In contrast, in Korea, following iM Bank’s transition to a nationwide commercial bank in 2024, the number of regional financial holding companies has dropped to just two—BNK Financial Group and JB Financial Group—and only five regional banks remain: Busan Bank, Gyeongnam Bank, Gwangju Bank, Jeonbuk Bank, and Jeju Bank. These banks have a strong regional representative character.

It is also noteworthy that in Japan, some regional banks have pursued independent survival strategies without forming holding companies. Tsubasa Alliance, for instance, has shared IT infrastructure and channels while standardizing back-office functions, and Kagawa Prefecture's Bank 114 has built a partnership with Nomura Securities to offer wealth management (WM) services, successfully attracting high-net-worth clients who previously did not use megabanks.

Domestic regional financial groups are also enhancing their own business capabilities while collaborating with other companies as needed to boost competitiveness. JB Financial Group has maintained its strong regional business capabilities—for example, by reinvesting profits made locally into loans for regional SMEs and residents, earning the top rating in the Financial Services Commission’s regional reinvestment evaluation. In addition, they are strategically partnering with domestic and global fintech and platform companies to strengthen micro-business and retail financial services nationwide, bolster financial offerings for foreigners, and expand into Southeast Asia and other new markets.

BNK Financial Group has also taken active steps to strengthen the economic ecosystem in the Busan-Ulsan-Gyeongnam region by creating productive finance funds and setting up specialized units to support the region’s strategic industries such as small modular reactors (SMR), defense, and shipbuilding. The group is also focusing on new growth drivers by supporting exports and imports and nurturing global startups through cooperation with overseas financial companies. The banks under these holding companies are actively working to broaden their business base in the capital area and other regions, for example, by forging joint lending collaborations with internet-only banks to supplement their competitive edge versus commercial banks.

An industry insider commented, “Japan’s experience—having gone through regional economic stagnation and population decline earlier than us—offers valuable lessons, but simply creating holding companies for alliances or mergers across the board is not a cure-all. Above all, we need to seek survival strategies suited to Korea’s own regional economic and financial environment.”

This content was produced with the assistance of AI translation services.