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S. Korean Financial Companies Going Global
[Special Report on Financial Industry]
S. Korean Financial Companies Going Global
  • By Jung Suk-yee
  • May 30, 2018, 16:39
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The four major Korean financial groups -- Shinhan, Hana, KB Kookmin and NH -- are entering overseas financial investment, insurance and credit card markets based on their international banking networks.
The four major Korean financial groups -- Shinhan, Hana, KB Kookmin and NH -- are entering overseas financial investment, insurance and credit card markets based on their international banking networks.

South Korean financial companies are expanding their business abroad, especially in Southeast Asian countries in line with the South Korean government’s New Southern Policy. The four largest South Korean financial groups, that is, Shinhan, Hana, KB Kookmin and NH are entering the local financial investment, insurance and credit card markets based on their international banking networks.

This can be attributed to the saturation of the South Korean financial market, where interest rates remain low and bank charges are on the decrease, negatively affecting profitability. In other words, the companies are riveting their eyes on overseas markets for new growth opportunities and profit diversification.

South Korean banks lag behind global leading banks in terms of profitability. Although the former’s current net income increased by 8.7 trillion won to 11.2 trillion won from 2016 to 2017, their ROA and ROE stood at 0.48% and 6.0% last year, respectively. Meanwhile, those of American commercial banks were 1.09% and 9.73% during the same period. Things are even worse in the non-banking financial sector.

A number of South Korean financial companies began to go abroad after the recent global financial crisis. They have expanded their overseas business by setting up new branches and acquiring local banking companies, which has led to some quantitative growth and profitability improvement.

In the past, South Korean financial companies used to go abroad together with South Korean manufacturers and do business only with them. These days, on the contrary, they are concentrating on M&A-based market expansion in order to beef up their corporate and retail banking services.

According to the Financial Supervisory Service, the number of their overseas branches in a total of 43 countries increased by 24 to 431 in 2017, which are divided into 185 bank branches, 115 for financial investment, 85 for insurance, 44 for credit finance, and two holding company branches.

Last year, the current net income of the 431 branches totaled US$934.1 million with a year-on-year growth of more than 40%. That of the bank branches reached US$806.6 million. By bank, KEB Hana posted the largest net income, 340.2 billion won to be exact.

KB Kookmin, NH and IBK Focusing on Southeast Asia

KB Kookmin Bank is the first South Korean financial company that entered the Southeast Asian market. At present, it has 13 overseas branches in 10 countries.

In September 2016, it launched Liiv Cambodia as a digital bank platform in Cambodia. More recently, it opened a branch in Myanmar.

“We are planning to connect Liiv Cambodia to offline banking in order to expand our business to Indonesia, Myanmar, Vietnam, and so on,” the company said, adding, “Some synergy is anticipated with the non-banking field including consumer finance and credit card business.”

NH Bank is a late starter, but it is currently expanding its market at a rapid pace in Southeast Asian agricultural countries. At present, NH Bank is running branches in New York and Hanoi, offices in Beijing and New Delhi, and a corporation in Myanmar.

NH Bank’s overseas business strategy can be defined as a combination between commercial finance and agricultural finance based on its know-how in the agricultural sector. The company is planning to complete the acquisition of a local micro credit institution in Cambodia before the end of the first half of this year. In addition, it is going to open branches in India, Vietnam and China.

IBK is expanding its networks in countries where it can better cooperate with a number of small businesses. As of the end of last year, it was running 27 overseas branches in 11 countries in total. This year, it obtained an approval for an office in Phnom Penh, Cambodia and signed a conditional stock purchase agreement with Mitraniaga Bankin Indonesia. Its office in the Russian Far East is scheduled to be opened within this year, too.

Woori, Shinhan and Hana Expanding to Non-Southeast Asian Countries

Woori Bank, in the meantime, is planning to enter the European market by establishing a local corporation in Germany this year. Its long-term goal is to link Woori Bank Germany to its branch in London and office in Poland and then enter the East European market, where multiple South Korean companies are running manufacturing facilities.

As of the end of March this year, Woori Bank had a total of 301 sales networks in 25 countries. The bank is going to increase the number to at least 500 in the first half by opening new branches in Turkey, Africa, etc. “Our overseas business currently accounts for approximately 10% of our net profit, but the ratio will reach 30% in 2020,” the company explained.

Shinhan Bank is currently the largest foreign bank in Vietnam. In addition, it is opening branches and corporations in various countries like the United States, Britain, Canada, Germany and Poland. It had 158 sales networks in 20 countries at the end of 2017. Shinhan Investment Corporation is planning to raise its overseas business ratio to at least 20% by 2020, and the subsidiaries of the Shinhan Financial Group are expected to work even more closely with each other in opening up new markets.

KEB Hana is focusing on Mexico. There, it obtained a banking business license last year and is planning to open a branch this year. Then, KEB Hana becomes the second South Korean bank in Mexico behind Shinhan. KEB Hana is working on a branch in Gurugram, India, too. The Hana Financial Group is going to increase the ratio of global business to 40% by 2025 mainly by means of M&A in emerging markets.

‘Excessive Concentration in Southeast Asia Should Be Avoided’

Experts, in the meantime, point out that South Korean financial companies need to further diversify their overseas markets instead of focusing on Southeast Asia.

Their 431 overseas branches include 299 in emerging Asian countries like China, Vietnam, Indonesia and Myanmar. According to experts, this ratio as high as 69.4% can be a potential risk factor in that it may lead to more fierce competition among themselves.

“Many South Korean banks have entered the Southeast Asian market only for short-term profits and, as such, their global competitiveness may be affected in the long term,” one of them warned, adding, “Besides, they may be exposed to different risks with many Southeast Asian countries still politically and economically volatile.”

Another one advised, “They need to adopt more digital means instead of being limited to existing banking business models with global financial environments going increasingly digital.”

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