Competition among banks over the selection of municipal treasuries that manage large local government finances is heating up, and a dispute over whether evaluation standards are fair is emerging as a new issue. Banks are clashing over interests, from competition over cooperation project funds backed by financial strength to the question of whether local agricultural cooperative branches should be recognised as part of NH NongHyup Bank’s branch network. The Financial Supervisory Service has also moved to rein in excessive competition in the treasury bidding process, likening it to a “tilted playing field”, and attention is on whether the current competitive landscape will change ahead of major selections such as Jeonnam-Gwangju Integrated Special City and Sejong.

As of Oct. 5, the financial sector said Jeonnam-Gwangju Integrated Special City and Sejong are each proceeding with procedures to select the next treasury to manage city finances from 2027 to 2030. Both local governments plan to receive proposals from financial institutions from Oct. 6 to 7. The Jeonnam-Gwangju Integrated Special City treasury draws strong interest from banks as it manages about 25 trillion won in finances annually.

A municipal treasury does more than simply hold local government funds. It manages general and special accounts and various funds, and can also secure touchpoints with local residents such as collecting local taxes. For banks, it is seen as a key business that can expand both deposit bases and sales capacity at the same time.

The issue is that as competition intensifies, controversy is also growing that a bank’s financial strength determines the outcome of treasury selection.

Lee Chan-jin (이찬진), governor of the Financial Supervisory Service, mentioned excessive competition in the local government treasury bidding process last month at a meeting with heads of bank holding companies.

Lee compared situations in which a bank with stronger capital wins selection as the final bidder through competition over cooperation project funds to a “tilted playing field”. He said he would examine the impact of spending on local government-related cooperation project funds on banks’ soundness and profitability. He also said local fund circulation and balanced regional development should be considered in the course of treasury operations.

◆ Are local agricultural cooperative branches also counted in NongHyup Bank performance?… Regional banks protest

Another issue in treasury competition is how to assess regional foundations such as branches and contributions to local communities.

In July, six regional banks — Gwangju Bank, Jeonbuk Bank, Busan Bank, iM Bank, Kyongnam Bank and Jeju Bank — jointly requested the Ministry of the Interior and Safety to improve relevant standards so that performance by local agricultural cooperatives is not included in performance by NongHyup Bank in evaluations for selecting local government treasuries.

Regional banks argue that although NongHyup Bank and local agricultural cooperatives are separate corporations, some local governments recognise the number of local cooperative branches and their local contributions as NongHyup Bank performance, undermining fairness in competition. In the Jeonnam-Gwangju area, Gwangju Bank has 126 branches and NongHyup Bank has 93 as of this year, but the gap widens sharply if 580 local agricultural cooperative branches are included.

Regional banks are particularly concerned that if assessments go beyond the simple number of branches and include the regional distribution of networks, the gap with NongHyup Bank could widen further. They argue that local agricultural cooperatives have dense branch networks down to county-level areas and rural and fishing communities, and counting that as part of NongHyup Bank’s network would make competition even harder for regional banks.

An official at a regional bank said, “If local agricultural cooperative branches are recognised as NongHyup Bank branches, it is already hard to compete in terms of numbers. If regional distribution is also assessed, NongHyup has branches even in county-level areas, making it more disadvantageous for regional banks.”

Some within regional banks also say they see evaluation conditions as more unfavourable this time than in the previous treasury selection. NongHyup Bank also won the first treasury in selections held in the first half of this year, and they say adding an assessment of network distribution this time could further highlight NongHyup Bank’s regional network.

Jeonnam-Gwangju Integrated Special City, at the centre of the controversy, will assess not only the simple number of branches but also how evenly branch networks are distributed across five autonomous districts and 22 cities and counties, starting with this treasury evaluation. To that end, an amendment to a related ordinance passed the city council last month. Whether local agricultural cooperative branches will be recognised as part of NongHyup Bank’s network is reportedly to be decided after the Treasury Designation Deliberation Committee draws up separate screening and evaluation standards.

NH NongHyup Bank currently serves as the first treasury for Jeonnam-Gwangju Integrated Special City, while Gwangju Bank serves as the second treasury. When the current agreement, which runs through the end of this year, ends, the financial institutions selected through this open competition will operate the treasuries from next year.

Regional banks are highlighting operational experience and stability built up over a long period of performing treasury work in the region as strengths. Still, there are also signs of a view that it will not be easy to secure an edge based only on existing regional foundations, as the integration of Jeonnam and Gwangju increases the treasury’s scale and widens the competitive scope.

They say stability is a strength stemming from long operation of the region’s treasury, but it is also true that the regional integration has changed competitive conditions.

Sejong has also begun selecting the first and second treasuries to operate for four years from 2027. It plans to evaluate financial institutions on creditworthiness and financial structure stability, loan and deposit interest rates, and convenience for citizens, and to sign agreements by November.

Some also see it as difficult for the competitive landscape to change significantly in the near term, since while the watchdog has raised issues about excessive competition in the treasury bidding process, the actual evaluation criteria and treasury designation are decided by local governments.

A regional bank official said, “The FSS governor mentioned the issue, but treasury selection is ultimately a matter decided by local governments. From the standpoint of regional banks, it is hard to expect major changes immediately.”