Align Partners proposes merger of JB Financial Group and BNK Financial Group

Align Partners has proposed a merger between two regional financial holding companies as a way to prepare for an era of local population decline.

Lee Chang-hwan, chief executive of Align Partners Asset Management, held a press briefing Tuesday in Yeouido, Seoul, saying "social costs are rising as an oligopolistic structure centered on major commercial banks becomes entrenched, limiting consumers' choice of financial services and raising the bar for small and medium-sized enterprises in the regions to secure funding." He said a merger between JB Financial Group and BNK Financial Group — the two remaining regional financial holding companies — is "a realistic and the most market-friendly solution" as the population and economic weight of the Yeongnam and Honam regions continue to shrink.

Align Partners sent open shareholder letters to the boards of JB Financial and BNK Financial on Tuesday, calling for the establishment of a special committee of independent directors and the appointment of advisers to conduct a strategic and financial feasibility review. The letters also demanded that both boards disclose by Aug. 7 whether they have begun a merger feasibility review, and that if they do, they release the findings and an implementation plan by the date of their third-quarter earnings announcement. Align Partners is the second-largest shareholder of JB Financial with a 14.8 percent stake and holds about 1 percent of BNK Financial.

Lee said the firm plans to examine board meeting minutes and other records if either company rejects the merger after deliberation. "If there is no convincing reason, or if they have not even begun a merger review, we will exercise our shareholder rights as an activist fund," he added.

Align Partners expects the merger to generate multiple synergies. The combined market capitalization would reach 10.3 trillion won ($7.56 billion) on a simple-sum basis — comparable to Kakao Bank's 10.9 trillion won — and could expand to 20.3 trillion won if the average price-to-earnings ratio of the four major commercial banks (9.4 times) is applied.

Lee said the merged entity could "maintain the influence of locally rooted financial brands in each region while enjoying merger synergies," and that combining the strengths of non-banking subsidiaries would strengthen the portfolio. He said improvements in return on risk-weighted assets, elimination of overlapping costs and IT consolidation could lift the merged holding company's return on equity from 9.1 percent to 12.8 percent on a simple-sum basis, surpassing the profitability of major commercial banks. He also said that because JB Financial's core operating territory centers on the Honam region and BNK Financial's on the Yeongnam region, a merger would in effect carry no cannibalization risk from overlapping branches or customers.

Align Partners particularly expects the merger to introduce a meaningful competitor to the commercial bank oligopoly, spurring innovation in financial services and improving consumer welfare. As of end of last year, regional banks held a combined 6 percent share of Korean won-denominated loans, while major commercial banks held 55.5 percent. Despite efforts to stimulate competition — including the licensing of internet banks and the conversion of IM Bank into a commercial bank — major commercial banks continue to hold an overwhelming share of lending.

Lee said there is a national imperative to expand regional finance. "Large sums are being invested in the regions through three major national megaprojects, yet regional financial institutions are actually far too small in scale," he said. "Only by achieving scale through a merger can they provide large-scale regional financing and keep pace with government policy."

Lee also cited examples from Japan, where Chiba Bank — the top lender in Chiba Prefecture — and third-ranked Chiba Kogyo Bank announced merger plans last year. Aichi Financial Group, the second-largest lender in Aichi Prefecture, and Sanjusan Financial Group, the second-largest in Mie Prefecture, also reached a basic merger agreement in May. "Japan has encouraged regional bank consolidation at the government level and eased regulations — a preemptive move to prevent insolvency," Lee said. "In recent Japanese bank consolidation cases, an activist fund called Ariake Capital played a contributing role."

Align Partners is a leading domestic activist fund established in 2021. It pursues value enhancement at portfolio companies by actively exercising shareholder rights to drive improvements in corporate governance, shareholder return policies and capital reallocation. Its cumulative assets under management stood at 1.24 trillion won as of last year, including assets advised for overseas funds.