Can merger revive Korea's regional banks?

An activist fund's proposal to merge BNK Financial Group and JB Financial Group has reignited debate over whether consolidation is needed to secure the long-term sustainability of Korea's regional banks, industry officials said Wednesday.

The proposal comes as regional lenders face mounting pressure from demographic decline and weakening local economies.

Activist fund Align Partners said Tuesday it had sent an open letter to the boards of BNK Financial, the parent company of Busan Bank and Kyongnam Bank, and JB Financial, the holding company of Jeonbuk Bank and Kwangju Bank, urging them to review the strategic merits of a merger.

The fund owns about 14.8 percent of JB Financial and around 1 percent of BNK Financial.

"A regional bank's business model increasingly points to gradual decline as the population and economic base in Korea's southeastern and southwestern regions continue to shrink," Align CEO Lee Chang-hwan said during a press conference.

He argued that the two groups have limited overlap in their customer bases while their nonbanking businesses are complementary, creating opport ...