During the 1997 financial crisis Japanese capital began to make inroads into Korea in earnest. At that time, Korea had no interest rate ceiling in place. A&O Credit, the predecessor of Rush & Cash, entered the Korean market in 1999 and took some substantial profits by means of an annual lending rate of over 130%.
Japanese capital rush into the Korean market has been even more accelerated since the 2008 global financial crisis. This is because there have been more opportunities to take over insolvent savings banks and companies.
At this moment, those in the industry are calling J Trust into question for its successive attempts to acquire Korean firms. J Trust has enjoyed huge profits by bond purchases and debt collection also in Japan, rather than normal sales activities. Many people are saying that J Trust is trying to do the same thing here in Korea while circumventing government regulations. “Savings banks are banned from purchasing lenders’ bonds and it seems that J Trust is intending to acquire lenders for alternative loans,” said one of them.
Another problem is the high profits of Japanese companies. Excluding the savings banks suffering from extended insolvency, the Korean lending market is like a bonanza for them. Rush & Cash’s return on assets for FY 2012 was no less than 6.2%, much higher than banks’ average at less than 1%.
They have taken hundreds of billions of won so far. For example, Sanwa Money’s total assets are at around 1.1314 trillion won (US$1.0678 billion), but its capital is 753.1 billion won (US$710.8 million). It has put all of its profits into internal reserves. Rush & Cash’s total assets and capital are 1.4959 trillion won (US$1.4118 billion) and 916.6 billion won (US$865 billion), respectively.
Japanese companies’ business in Korea can be of help when it comes to dealing with Korean institutions’ insolvency. It is none other than SBI that is normalizing the business of Hyundai Swiss Savings Bank through a capital increase. Even a high-ranking government official admitted this point by saying, “SBI invested close to one trillion won for us not to suspend the sale of the savings bank,” adding, “It has turned out that the Japanese company helped us to protect the customers from business suspension.”
Japanese lenders are buying distressed debt, too. Chinae Savings Bank bought 313.6 billion won (US$296.0 million) worth of loans from what was Solomon Savings Bank, and 193.9 billion won (US$183.0 million) worth of loans from HK Savings Bank this year. They have long been major players in the non-performing loan (NPL) market in Korea. “It cannot be denied that the Japanese capital has alleviated the burden of the financial authorities, at least to some extent, by purchasing insolvent savings banks and NPLs,” an expert explained.
Still, market watchers are concerned over the possibility of them dominating the overall lending market. Once they get the inside track, customers with low credit ratings cannot help themselves in the face of a potential lending rate hike or stricter debt collection, due to the absence of local alternatives.
Influence Expanding in Industries As Well for Incomplete Regulations
Orix, which is emerging rapidly in the non-banking sector, is increasing its influence in many industrial fields, too. It has taken over STX Energy during the restructuring of the STX Group. The thermal power generation company ended up in the hands of Orix due to the government’s policy to not limit the eligibility in the case of a change in major shareholder. Likewise, there is no way to stop Tong Yang Power from being bought by a foreign company.
In the meantime, Toray Advanced Materials was selected as the preferred bidder for Woongjin Chemical last month, and Nichi-Iko Pharmaceutical, the number one counterfeit drug manufacturer in Japan, has become the largest shareholder of Binex. “Japanese capitals are rushing into the Korean market to capitalize on the low interest rate trend,” said a market insider, adding, “We need to closely monitor the situation because foreign investors can fly out any time they want after taking a significant sum of profits.”