Shinhan Bank: Korea’s non-appearing act

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Published on:

This financial institution is one to watch – if you can find its hiding place.

Shinhan-Bank-Getty-780.jpg


Asiamoney_30trim-780.jpg
ASIAMONEY 30

There’s nothing wrong, per se, with any of Korea’s big lenders. 

The country’s big four banking groups – Shinhan Financial, KB Financial, Hana Financial and Woori Financial – are chugging along nicely. Collectively, the quartet reported record net profits in 2018, thanks to robust interest income and an economy that is tipped by the IMF to grow at just shy of 3% in 2019 and 2020.

Shinhan Financial, the holding company of Shinhan Bank, reported a record net profit of W3.16 trillion ($2.6 billion) in 2018, up 8.2% from the previous year. Its market capitalization in late August was about W19 trillion, against W16.4 trillion at KB Financial and W9.6 trillion at Hana Financial.

In late May, S&P Global Ratings assigned Shinhan Financial an ‘A’ long-term issuer rating with a stable outlook, and an ‘A-1’ short-term issuer rating. The ratings, it said, reflected the group’s “strong market position as the largest financial holding company in Korea”, and its diversified business structure, strong asset quality, and “extensive” retail customer base.

That message is worth reinforcing. Shinhan Bank is the biggest and probably the best commercial lender in a strong economy built on the export of genuinely world-class capital goods, ranging from smart phones to container ships, not to mention its rising status as a soft power, courtesy of K-pop acts like BTS and Psy.

Anomaly

When emerging Asian states talk of evading the middle-income trap and attaining developed status, it is the Republic of Korea they have in mind. Koreans in the southern half of the peninsula work hard, play hard, and mostly ignore the bellicosity of their cousins to the north. The likes of Hyundai and SK Group are diversified world-class corporates, with assets and offices scattered across the globe.

Given all this, the question arises: where the hell is Shinhan Bank hiding? This is surely one of Asia’s great financial anomalies. Yes, as S&P Global Ratings wrote in its note, the Seoul-based lender is “well diversified in Korea with a nationwide branch network”. 

That’s true of its big domestic peers too. In their home market, they rule.

But step outside Korea, and they immediately disappear. It’s almost spooky. Not a single one of the country’s large lenders are a known presence in Asia, let alone on the world stage. 


The fact it isn’t out there on the world stage, opening offices, buying assets and shadowing Korea’s great global corporates every step of the way isn’t just strange, but frankly bizarre 

Sure, Shinhan Bank has an overseas presence. There are working offices in 20 countries, including India, Australia, Japan, Cambodia and China.

And it has bought assets overseas, quietly and judiciously. Since the start of 2017, it has acquired two small lenders in Indonesia, and snapped up ANZ’s retail business in Vietnam, which serves 124,000 customers. 

That deal in particular made good sense. Vietnam is not only one of Asia’s fastest-growing economies, but the focal point of Samsung overseas. 

The giant chaebol makes 70% of its mobile phones there, and has over the past decade invested an estimated $17 billion in the country.

Regional exploits

Korea’s other big lenders are also increasing their Asian presence. Two years ago, Woori Bank injected $100 million into its Indonesian subsidiary, Bank Woori Saudara. KEB Hana Bank, which has branches in China, Indonesia and India, aims to generate 40% of its profits overseas by 2025, against just 10% in 2016.

But this is fiddling small change compared to, say, the regional exploits of Japan’s Mitsubishi UFG Financial Group, which in April 2019 splashed out $3.8 billion to raise its stake in Indonesia’s sixth-largest lender, Bank Danamon, to 94% from 40%. 

Even in markets where Shinhan Bank is quite strong, such as Vietnam, it is outshone by more established international lenders, notably Citi, HSBC and Standard Chartered.

Nor is Shinhan Bank setting the digital world alight. 

It has a perfectly good online offering, but like all of Korea’s big banks, it has been left for dead by kakaobank, a profit-making digital lender that boasted 9.3 million customers at the end of April 2019, despite only opening its doors for the first time less than two years earlier.

Shinhan is not a bad bank: it’s a good, well run, and largely one-market lender that plods along, turning a decent profit each year, thanks to its large and stable retail customer base, and a strong corporate and investment banking franchise. 

But the fact that it isn’t out there on the world stage, opening offices, buying assets and shadowing Korea’s great global corporates every step of the way, isn’t just strange, but frankly bizarre. 

Perhaps new chief executive Jin Ok-dong will turn things around.