South Korea’s Banks Target Rising Eastern Europe

Domestic banks are actively entering the Eastern European market. This is owed to a decline in the Western European economy, which caused investment funds to shift to Eastern European nations such as Poland, Turkey, and Hungary, where the economy is steadily on the rise and showing signs for growth potential.   

It is perceived that demands for financing will rise high, as Korean companies will install production bases in Eastern Europe as a means to advance there. However, there are concerns of extreme cutthroat competition among domestic banks, as their marketing strategy is based on sales to domestic companies there. 

According to the finance industry on June 26, Woori Bank is establishing a “Korea Desk” in local banks in Eastern Europe including Poland, the Czech Republic, and Hungary. A Korea Desk will perform as an intermediary for the financing demands of Korean customers by renting a certain amount of space in local banks. Their objective is market research and experience before establishing offices. Woori Bank, which had sent global market research professionals to Poland and Turkey in the second half of last year, decided instead to sign an MOU with local banks, as financing demands were not enough in the market just yet. 

Shinhan Bank is the most active in advancing into the Eastern European market. Shinhan Bank opened Korea’s first office in Poland and plans to advance further into the Czech Republic and Slovakia, where numerous domestic companies are present. Shinhan has completed inspection of the Turkish market and is discussing entrance into it. 

Korea Exchange Bank also opened its office in Turkey last year, and had planned for Poland as well. In addition, KDB Bank and Korea Eximbank run offices in Slovakia and Turkey, respectively. 

An official in the banking industry says, “Domestic banks find it difficult for their offices in the UK or Germany to make up for the Eastern European market. With manufacturing presences in Western Europe transferred to Eastern Europe, domestic banks are seeking ways to advance into Eastern Europe. As large companies including Samsung, LG, and POSCO are stationed in the east, the financing demands of mid-to-small sized companies, which entered the market with the large businesses, will increase.”

With the banks accelerating their expansion into the Eastern European market, however, the prospect of excessive competition targeting domestic companies there is generally seen in the banking industry. 

The reason is that some domestic banks, which have no experience in sales services there, cannot but make every effort to focus domestic companies at their early business stage. Furthermore, the domestic manufacturing companies, which have already been localized there, can raise financing at low interest rates from local banks, which may lead domestic banks to jump into the scramble against each other to win a small part. 

Last year, Korea Eximbank withdrew its resident employees from Poland, the country with the highest number of domestic companies, based on the judgment that loan demands there were decreasing. 

In addition, there are some concerns over the difficult marketing environment, such as local regulations and competition with local banks. Last year, Hanhwa Group sold its Hanhwa Bank of Hungary, which had been run for 17 years since 1996, to a local manufacturing company. Such a decision came from it being too expensive to stand the constant deficit owing to local regulations and economic conditions.