South Korean banks in China have initiated full-scale risk management processes with South Korean companies in China scaling down their business in the country.
The Financial Supervisory Service announced on March 20 that South Korean banks increased their assets in China by only 0.2 percent to US$26.4 billion in 2018 whereas the rate of growth was 14.2 percent in 2016 and 12.1 percent in 2017.
This is because the ongoing trade war between the United States and China is likely to add to the uncertainties of the Chinese financial market and an increasing number of South Korean companies are stepping out of China due to its slow growth and increasing labor costs.
The banks are concentrating on new business relationship with Chinese companies instead of expanding their business with South Korean companies in China. This has to do with the fact that the Chinese financial authorities are currently encouraging new loans for small Chinese firms. Still, it is said that South Korean banks’ local networks are currently not enough to provide loans for leading Chinese companies. Although the current net income of South Korean banks’ branches in China jumped by 42 percent last year, the growth was based on rising interest rates rather than local network expansion.
However, experts point out the branches in China will eventually become the banks’ major profit source as the trade war is predicted to result in further opening of the Chinese financial market.