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(News Focus) S. Korean banks go overseas to find new sources of profit

All Headlines 09:00 September 02, 2015

By Lee Minji

SEOUL, Sept. 2 (Yonhap) -- Major South Korean banks are turning their eyes to overseas markets as low interest rates and a policy push aimed at expanding financial services for consumers are making their home turf a difficult place to earn money.

Also jumping on the bandwagon are credit card firms and insurance companies that are searching for new growth engines as the country's population is rapidly aging and the market for their products is already saturated.

A handful of key financial firms have announced the establishment of overseas units or plans to go abroad this year, with their destinations ranging from countries in Southeast Asia to those in Latin America and Europe.

Shinhan Bank, the country's third-largest lender, is one of them. The Shinhan Financial affiliate recently said it has earned a license from the Mexican financial regulator to operate a financial institution in the country.

Shinhan, which has been operating a liaison office in Mexico since 2008, said it plans to open a bank subsidiary in the country before the end of the year.

"We plan to support the growth of the local Korean community as well as South Korean companies. We will also step closer to Mexican firms and customers through localized sales," the lender said.

The Mexican expansion is part of the financial group's bigger plan. In July, its credit card unit Shinhan Card opened a subsidiary in Kazakhstan with plans to open an Indonesian subsidiary in November.

State-run Woori Bank entered the Indonesian market earlier this year by teaming up with Indonesia's Bank Saudara to launch "Bank Woori Saudara," a joint unit in which the Korean lender holds a 74-percent stake.

KEB Hana Bank also opted to partner with a Chinese firm. In May, the lender jointly established "Zhongmin International Financial Leasing" with China Minsheng Investment.

Non-banking South Korean financial firms have also been scurrying to tap into overseas markets. Dongbu Insurance acquired Vietnamese insurer Post & Telecommunication Insurance in January and also opened an office in Myanmar.

Some companies are testing their business in Europe, with Hyundai Marine & Fire Insurance setting up an office in Frankfurt, Germany and APRO Service Group launching a subsidiary in Warsaw, Poland.

The move comes as local financial firms are struggling with low interest rates, which have been moving further lower following four rate cuts by the central bank that sent the key interest rate to a record low of 1.5 percent.

The financial regulator's policy initiative to launch Internet banks and allow bank users to easily move their accounts from one back to another are also behind their overseas push as it is feared to eat into profit by intensifying competition.

In the second quarter of this year, the combined net profit of 18 local lenders stood at 2.2 trillion won (US$1.9 billion), down 5.4 percent from a year earlier, according to the Financial Supervisory Service (FSS).

Their net interest margin, a key gauge of profitability, dropped to an all-time low of 1.58 percent from 1.63 percent three months earlier, the regulator said.

Market watchers warn that while going abroad is an effective way to find new sources of profit, local banks should expand their business to various financial services rather than focusing only on retail and corporate banking for Korean clients.

For instance, banks in Australia and Japan have successfully increased their sales from overseas by shifting away from traditional banking services and embracing investment banking, according to a report by Hana Financial Group.

Japanese lenders reap around 30 percent of their profit from overseas businesses, while Australian banks, such as National Australia Bank and ANZ Bank, get roughly 17 percent of their profit from such units, the report said.

"In order to succeed in globalization, banks should reconsider their overseas expansion strategies and venture beyond retail and corporate banking," said Ju Yun-shin, who wrote the report, "They should also diversify their destination and format of their expansion."

Local lenders operated 162 overseas units in 36 countries as of the end of last year, adding 10 units in countries like Russia, Cambodia and Myanmar, compared to the previous year, according to the FSS.

mil@yna.co.kr
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