Exodus in Financial Sector

Jeong Eun-bo (second from right), Vice Chairman of the Financial Services Commission (FSC) said on July 20 the FSC plans to set up a task force to deal with business setbacks that foreign financial firms face.
Jeong Eun-bo (second from right), Vice Chairman of the Financial Services Commission (FSC) said on July 20 the FSC plans to set up a task force to deal with business setbacks that foreign financial firms face.

 

An increasing number of non-Korean financial companies are leaving South Korea as the profitability of its financial industry is deteriorating due to regulations and low interest rates. For example, Barclays decided to do so early this year and Goldman Sachs and UBS have returned their banking licenses.

Under the circumstances, the number of foreign financial companies’ branches in the country dropped from 57 to 46 between 2013 and last year. Experts point out that this situation could negatively affect South Korea’s participation in global project financing and foreign currency procurement.

Foreign financial firms’ ongoing exodus can be attributed to their personnel and network reduction for a higher level of efficiency with their profitability on the decline as a result of low interest rates and an increase in non-face-to-face transaction. Last year, the South Korean banking sector recorded a return on assets (ROA) of 0.43% while U.S.-based commercial banks posted an ROA of 1% or so.

“Doing banking business in South Korea is indeed a tough job because the rate of return compared to equity capital or asset value is extremely low,” said an industry insider, adding, “This structural low profit is driving foreign financial companies out of South Korea.”

The Financial Supervisory Service also explained that the trend for the past couple of years was led by the shutdown of 10 retail banking branches of HSBC whereas that following the global financial crisis of 2008 was mainly because of portfolio adjustment and deleveraging. 

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution