While many global banks are expanding their businesses into M&A fields, Korean banks still have a long way to go. Especially in terms of global M&A deals, the performances of Korean banks are significantly worse than foreign banks. It is therefore pointed out that Korean banks need to actively tap into overseas markets, starting from emerging markets such as Southeast Asia.
According to the financial industry on June 24, the total M&A deals done by Korean banks from 2011 to 2013 are worth of US$4.18 billion (at completion of transaction), and foreign M&As account for only 1.1 percent of U$43.98 million.
During the same period, Japanese banks made US$29.59 billion worth of M&A deals, and foreign M&As account for US$9.32 billion, which is the world’s highest number. Foreign M&A businesses of Japanese banks in 2013 became 4.5 times larger than the previous year, and they are engaging in overseas businesses even more actively nowadays.
American banks expanded their businesses through a total of US$58.88 billion worth of M&As from 2011 to 2013, and foreign M&As were US$6.2 billion. Russia also succeeded in a total of US$11.44 billion worth of M&A deals, including US$6.62 billion of foreign cases.
The M&A performances of Korean banks were worse than those of European countries, which were hit by the recent financial crisis. During the same period, Italy scored U$18.12 billion in M&A deals ($170 million foreign) and Spain did U$15.94 billion (U$290 million foreign).
Jin Kim, a researcher at Woori Finance Research Institute, said that Japanese banks, based on high liquidity created by Abenomics, are expanding overseas businesses by promoting foreign M&As and increasing foreign loans, which is a very good strategy out of their domestic market stuck with low growth and a low interest rate. He also mentioned that levels of Korean banks’ overseas activities, including overseas asset sizes, are very low, although they face a situation similar to that of Japanese banks.
Many professionals claim that Korean banks need to come up with new strategies to overcome the current crisis, including foreign M&A plans.
Currently, 70 percent of people in emerging Asian countries do not have bank accounts according to an industry source. Annual demands for loans are increasing in Thailand and Indonesia, by 10 percent and 20 percent respectively.
Hana Institute of Finance said that Korean financial institutions are turning their eyes to many of emerging Asian countries, but they are still focusing on Korean companies with foreign branches. Hana Institute also advised that Korean banks, just like Japanese banks, need to find ways to expand their overseas businesses such as M&As with local banks, equity investment to local banks, and strategic partnership with global investment banks.
Inter-bank M&As might also be necessary. Park Kang-hoon, a professor at the University of Missouri, said at a recent symposium held by Korea Institute of Finance, Korea-US Economy Society and Korea-US Finance Society, that he studied monopoly effects from the emergence of super-sized banks. He rather found that competition among Japanese banks has been more intense after M&As. He added that the huge banks created through fierce restructuring are competing even harder to survive.
Acknowledging the fact above, Korean banks are actively going overseas.
KDB is trying to build an “Asia Finance Belt” centered on Japan, Vietnam, China, and Indonesia. KDB is also currently under negotiation with the Indonesian government to acquire the Bank Metro Express of Indonesia.
Hana Bank is focusing on establishing its Ho Chi Minh branch to complete the Asian belt connecting Jilin, China, Hong Kong, Vietnam, Singapore, Indonesia, and the Philippines. In May, the Financial Services Commission approved Hana Financial Group to acquire its subsidiary companies of BNB bank. BNB is the first Korean American bank that Korean residents in East Coast America built.
Woori Bank is putting a lot of efforts to create networks in the Middle East. Based on its Dubai branch established on June 10, Woori Bank is planning to expand its businesses to other Middle Eastern countries including Iran and Iraq, as well as North Africa.