Seoul to Decide on New Bank Custodian for $51 Billion Budget

On May 12, Seoul will select a new custodian bank to manage its annual budget of 51 trillion won. A fierce competition is expected as Shinhan Bank seeks to retain its position while Woori Bank aims to reclaim it after four years. Despite the inevitable burden of high interest rates and contribution funds, the stakes are high due to the symbolic and ancillary benefits associated with the role.

According to financial industry sources and the Seoul city government, the city will hold a custodian bank selection committee on May 12 to evaluate proposals and presentations from the bidding banks.

On that day, the committee will assess the proposals and presentations from each bank, ultimately selecting the top-scoring institutions for the primary and secondary custodian roles. The chosen bank will manage Seoul's funds from next year through 2030.

Four banks submitted proposals by the May 6 deadline: Shinhan, Woori, KB Kookmin, and Hana Bank. Shinhan and Woori both bid for the primary and secondary custodian roles, while Kookmin and Hana only participated in the secondary custodian bidding.

The primary custodian is responsible for managing the general and special accounts, while the secondary custodian oversees fund management. Of this year's budget of 51.4778 trillion won, approximately 47 trillion won is allocated to the primary custodian. Thus, the bank selected as the primary custodian effectively secures the custodian status for Seoul.

Shinhan and Woori have previously competed for the primary custodian role in 2018 and 2022. Woori Bank has managed the Seoul city custodian role for over a century since the days of the Gyeongseong City Custodian in 1915, but lost the position to Shinhan Bank in 2018. Shinhan retained the primary custodian role in 2022 and also secured the secondary custodian position.

Woori aims to reclaim the Seoul city custodian role in this bidding. Since the second half of last year, the bank has formed a task force to develop strategies for evaluation criteria and prepare its proposal. Woori plans to highlight its extensive experience in revenue and expenditure management accumulated over more than a century of custodianship, as well as its current management of 14 out of 25 district custodians in Seoul.

Shinhan Bank emphasizes continuity and stability. Having operated the primary custodian role for the past eight years and integrated the secondary custodian management since 2022, Shinhan has established a robust IT system and settlement framework, ensuring continuity. Collaborative projects with the city, such as the public delivery app 'Ddaengyeo' and support for local merchants and the Seoul Plaza ice rink, are also seen as strengths.

Industry insiders identify interest rates as a key factor in the custodian selection process. Given that there is little differentiation in management capabilities, creditworthiness, and financial stability among the banks, interest rates are expected to play a decisive role.

In fact, the city has raised the scoring for interest rates on demand deposit accounts from 6 points to 8 points in this selection process. This change is interpreted as an effort to encourage competition among banks to offer higher rates. The interest rate for the Seoul city custodian is calculated by adding a bank-specific premium to the base rate, which remains fixed during the contract period, significantly affecting profitability.

Contribution funds are also a critical factor that could influence the outcome. In the 2018 primary custodian bidding, Shinhan Bank proposed a contribution of around 300 billion won, and in the 2022 re-bidding, it was reported to have offered approximately 260 billion won.

A financial industry source noted, "While there are various evaluation criteria, the actual competition will hinge on the contribution funds and interest rates. Although there are cost burdens, the potential for securing a large funding base and the associated brand benefits are significant, prompting banks to actively pursue this opportunity."