South Korean banks are pushing to enter the global investment banking (IB) market in order to diversify their business portfolio and increase profits. However, some say that they are still in its infancy compared to global banks.
According to IB industry sources on June 25, major South Korean banks are aggressively pushing ahead with global IB business by greatly increasing IB workforce and desks and delivering results in major countries.
Woori Bank has set up IB desks and has been sending IB experts to its branches in Hong Kong, New York, London and Singapore since last year. The bank arranged a US$80 million (89.22 billion won) financing for aircraft purchase in China, a US$13 million (14.5 billion won) financing for thermal power plant development projects in Pennsylvania and a US$96 million (107.06 billion won) project financing for Nexen Tire Corporation’s plant in the Czech Republic.
Kookmin Bank also installed an IB desk in its Hong Kong branch last year and is planning to build another one in its New York branch this year. The bank arranged a US$145 million (161.7 billion won) financing for the acquisition of a gas pipelines for Ares EIF in the United States and a US$100 million (111.52 billion won) financing for the acquisition of gas-fired power plants by Starwood Energy Group last month.
KEB Hana Bank recently created an IB desk in its branches in Singapore, Hong Kong and New York and started conducting market research for IB business in Central and South America in the future. The bank also participated in lending investment in the underlying mortgage loan for a mid-size firm in North America and highway and light rail transit projects in Australia.
An official from the IB industry said, “As the global IB market is active in terms of transactions in various directions, it is easier to secure profits through financing arrangement and consultation. Banks are focusing on the global IB market again, which was once abandoned after the global financial crisis, in a bid to create a long-term growth engine beyond limited profits in the domestic market.”
However, the global IB business of domestic banks is still in its infancy compared to global banks. Major global banks, which have been seeking to conduct global IB business due to its marketability, runs a big IB business and shows high percentage of profits. An official from the Korea Center for International Finance said, “Bank of America (BOA), Bank of Tokyo-Mitsubishi UFJ (MUFG) and Hongkong and Shanghai Banking Corporation (HSBC) see its global IB business accounts for about 40 percent of total profits on average. However, domestic banks have been focusing on the IB business from years ago but the size of their business is still smaller than one third of global banks’.” In fact. The percentage of domestic banks’ global IB business stands at a mere 3 percent of total profits on average.
Experts agree that domestic banks should turn their eyes to the global IB market in order to diversify profits but they say it is still uncertain that they will able to grow the global IB business to the same level of global banks in the future. They also said that the banks need to put a multilateral effort, which crosses boundaries between financial firms, into the global IB business for sustainable growth.
An official from the Korea Institute of Finance said, “At the initial stage of market advance, the joint cooperation system between banks can reduce access costs to specific areas. It is desirable that domestic banks should gradually expand their business areas based on expertise and networks built in the global market by strengthening cooperation with policy finance companies, including the Export-Import Bank of Korea, further.”