First Partnership Between Financial Holding Companies
Shinhan Financial Group and Hana Financial Group signed a memorandum of understanding (MOU) for global business partnership on May 25. It is the first business partnership between South Korean financial holding companies. They are the largest and third-largest financial companies in South Korea, respectively.
The global business unit of Shinhan Financial Group posted a net profit of 89 billion won in the first quarter of this year, up 13.6 percent from a year ago. That of Hana Financial Group’s global business unit jumped 117.9 percent to 113.3 billion won during the same period. The performance improvements were made based on their aggressive overseas marketing.
The MOU is based on their conclusion that they can create synergy as two leading international players. The only potential hurdle is the sizes of their assets. The overseas assets of Shinhan and Hana constitute only 10 percent or so of their total assets. The assets themselves need to be increased for more profits, and then more personnel and costs will be required. However, the number of South Korean banks’ overseas branches already topped 1,000, including 772 located in India and ASEAN member countries. An economy of scale should be realized for substantial effects, and yet the banks have flocked to the countries for more money to cause unproductive competition.
The MOU of Shinhan and Hana is expected to have a significant ripple effect in the industry. “They are expected to pursue an economy of scale while refraining from competing with each other in overseas markets, and then acquisition of local financial companies can be accelerated,” a local commercial bank explained, adding, “This means the foundation has been set for them to vie with Mitsubishi UFJ, Mitsui Sumitomo and Mizuho, which are currently dominating the Southeast Asian financial market.”