South Korea: Stalled banks go abroad for growth
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Northeast Asia

South Korea: Stalled banks go abroad for growth

South Korea’s banks are looking overseas for opportunities and faster profit growth now that their domestic market no longer offers the revenues and excitement it once did.


It is no secret that Korea’s banks face dreary prospects at home: economic growth is slowing and competition is intense, putting pressure on profits. No wonder financial institutions are turning abroad for growth.

Four banks dominate Korea’s market: Kookmin Bank, Shinhan Bank, KEB Hana Bank and Woori Bank. There are a few smaller lenders and international banks, as well as internet-only banks. But for a developed country with just over 51 million people, there are very few corners of the market that haven’t been reached by a bank.

“Korea’s reached its peak on the domestic businesses,” says the chief executive of one of the international banks in South Korea. “The Korean market has pretty much reached its maturity, so [companies are] looking at emerging countries or new economies.” 

Regardless of sector, Korea’s companies need international growth.

Whether in retail banking, commercial banking or capital markets, South Korea’s banks have reached a plateau; they also face increasing competition from fintech disruptors, which puts pressure on fees and inevitably on profits.

“A lot of banks, a lot of securities firms are competing,” says the chief executive of the international bank. “Their margins are shrinking, so they have to invest outside of Korea.”


Shinhan, for example, is embracing global growth with enthusiasm, in response to slower economic growth at home where, according to the World Bank, GDP per-capita growth was 2.3% in 2018, down from 2.6% in 2017.

In 2006, Shinhan had just 15 overseas branches, serving mainly Korean-based corporate customers. Today, Korean corporates account for about 26% of Shinhan’s global loan portfolio, with local corporates taking up 44% and retail business 30%.

“The GDP growth of Korea is now 2% to 3%,” says Hyo sub Kim, relationship manager for financial institutions in the global business division of Shinhan Bank. “We want to diversify more into the emerging markets, and we wish to grow together with them.”

Shinhan has ambitions to expand its international business further. The bank aims to have 20% of its net income come from its global business by 2020, says Kim, and 30% by 2025.

KEB Hana has also dedicated resources overseas in recent years. Hana Financial Group had 183 subsidiaries and offices in 24 countries at the end of 2018, after adding 23 overseas channels for KEB Hana Bank, including a microfinance arm in Myanmar. Total assets for the bank’s overseas branches and subsidiaries reached $26.9 billion at the end of 2018.

Woori Bank, which says that it uses a localized business strategy overseas, reported a net profit of $143 million at the end of 2017, a 58.5% increase from the previous year, according to its 2017 annual report. The bank has focused its recent growth on southeast Asia, in particular Vietnam and Indonesia, and says it has 301 networks in 25 countries.

Southeast Asia

It is only relatively recently that growth in the Korean banks’ international businesses has taken off, even though some of the lenders have had an overseas presence for a couple of decades. Shinhan, for instance, has established a presence in 20 countries, including Cambodia, Kazakhstan, China, Vietnam and Indonesia. The bank’s biggest international business is in Vietnam, where it has been since 1993. Southeast Asia – and in particular Vietnam and Indonesia – is the area where South Korean banks have focused their attention.

“Many Korean companies have failed in China,” says the chief executive of the international bank, joking that the only exception is Orion Group and its Choco Pies. 

Korean companies see more potential in south and southeast Asia, where geographic proximity and the cultural similarities help expansion. 

“There has been a lot of activity in southeast Asia, and I think there will be a lot more going forward,” says the chief executive.

Woori Bank, for example, launched a microfinance business in Cambodia in 2014. The business had a loan portfolio of $79.47 million at the end of 2018, up from $42.32 million the previous year.

Shinhan opened its first representative office in Ho Chi Minh City in 1993, and received a licence for Shinhan Vietnam Bank in 2008.

“When we started our retail banking in the overseas market, many foreign peers told us that this idea could be reckless,” says Kim. 

The increasing footprint of Korean corporations overseas has created an opportunity and the incentive for Korean banks to use a follow-the-customer approach - Tae Jong Ok, Moody’s

Since then, the bank has expanded and has more than 30 offices and branches in the country, making it the largest foreign retail bank there.

But even Shinhan’s presence in Vietnam has felt lukewarm. The bank certainly doesn’t spring to mind when one thinks of players in southeast Asia. 

Kim admits that many people don’t know where Shinhan is from, instead assuming that it is a Chinese or Japanese bank. Indeed, industry players agree that South Korean banks will never have the presence in other Asian countries that Chinese or Japanese banks do. The latter nations are much larger and have more financial muscle. 

South Korean banks are generally smaller and tend to be slower when it comes to expanding abroad.

“Going overseas has been a long aspiration of the Korean banks, but so far the Korean banks have not been aggressive in their efforts to expand overseas,” says Daehyun Kim, credit analyst at S&P Global Ratings. “Based on our observations, southeast Asia is a priority, as opposed to going to the US or Europe where the markets are saturated.”

He adds that Korean banks have and will approach international growth at a gradual and cautious pace. They will remain focused on maintaining a moderate appetite and stable market share domestically, while dipping their toes in foreign waters. 

A region such as southeast Asia offers high returns on investment, but it also comes with risks, he says. Korean banks are unlikely to make large acquisitions in these countries and will be happy with slow and steady progress.

Follow footprints

The approach of South Korea’s banks to international growth seems to be to follow Korea’s biggest firms, such as LG and Samsung, as they move into new markets. Vietnam, for instance, is home not only to Shinhan’s largest subsidiary by net income outside Korea, but also to the factories of Korea’s technology companies. Samsung employs about 110,000 people in Vietnam and has investments of $9.5 billion. 

Other companies have been increasing their presence in southeast Asia, and Vietnam in particular, as the US-China trade war has lessened China’s appeal. Korean conglomerate SK Group, for example, bought a 9.5% stake in Vietnam’s Masan Group Corp in August 2018, and a 6.1% stake, valued at $1 billion, in Vingroup in May 2019.

“The increasing footprint of Korean corporations overseas has created an opportunity and the incentive for Korean banks to use a follow-the-customer approach,” says Tae Jong Ok, analyst for the financial institutions group at Moody’s Investors Service.

Despite their ties to Korean corporations, Shinhan and its peers say they are trying to embrace a wider pool of customers. 

“It is easy to follow the footprints of Korean corporates, but how long can you do it?” asks Heakyu Chang, senior director, financial institutions at Fitch Ratings Korea. “And the profitability is not that strong either.”

Successfully breaking into a foreign market may require less traditional approaches, especially in emerging markets.


HongTaik Chung

“These markets [in southeast Asia] are growing fast in the digital, mobile fronts,” says HongTaik Chung, credit analyst at S&P Global Ratings. 

Digital growth may present different opportunities for foreign banks looking to connect with local retail customers. Chinese banks and companies have used such an approach, with digital platforms such as Alipay and WeChat gaining market share in southeast Asia.

Woori has already begun doing just that, entering partnerships with fintech companies in order to reach southeast Asian customers. 

In Indonesia and Vietnam, the bank began offering account deposits and withdrawals using partner platforms, in addition to having pre-paid recharge functions and payment services on mobile phones in 2017. 

Woori has expanded its fintech services internationally, reaching seven countries at the end of 2017. 


Heakyu Chang,

“To succeed overseas, you need to have a strong local franchise, and that ultimately means you have to appeal to the retail customers,” says Chang at Fitch, adding that he believes Korean banks are well-placed to do so, and that there is still room for them to penetrate the market.

Other banks in South Korea have expanded into new digital businesses at home, particularly as internet-only banks broke onto the scene in 2017, as well as overseas. 

Shinhan began an incubator called Future’s Lab in Vietnam 2016, after first starting the accelerator programme domestically. The initiative, which spread to Indonesia in 2019, is intended to support and scale up startups, helping young Korean businesses reach international markets.

“We’re investing more and more to provide more services to foreign customers,” says Shinhan’s Kim. 

This includes taking some of Shinhan’s other businesses, such as its credit cards and life insurance products, to foreign markets. 

Kookmin has used a similar approach, expanding its subsidiary businesses, including KB Kookmin Card, across the region.

Shinhan has made strategic partnerships with e-commerce companies, including Jingdong in China, and others outside South Korea.

“We try to make partnerships with other service providers, like taxi companies and e-commerce companies,” says Kim. 

“We are trying with our best efforts to maximize the strategic partnerships with the digital service companies to enhance our customer experience in the world market.”


South Korea’s internet-only banks are still new: kakaobank and K Bank were established in 2017, but they may also compete in the race to gain an international presence. 

Kakaobank has expressed international ambitions, once it is better established in Korea. 

The bank recognizes that it has the potential to tap markets where KakaoTalk, the instant messaging phone app from which the bank was spun off, is popular. 

KakaoTalk already has a global reach, including a presence in the US, thanks to the large Korean population there.

Fitch’s Chang is a bit more sceptical of the potential for digital-only banks to have global success, despite their domestic successes. 

Very few digital-only banks have been able to break free of their domestic borders, he points out. The UK-based Revolut is one successful example, having reached customers across Europe, as well as Australia, Canada, Singapore and the US. 

International expansion is never easy for banks, no matter how well-established they are in their home markets. 

“Overseas expansion is always extremely challenging,” says Chang. “At first it can appear successful, but suddenly it turns out to be losing everything in a short period of time” – as shown by KB Kookmin Bank’s experience in Kazakhstan. 


Tae Jong Ok,

Local markets are often restrictive, forcing a bank to start with businesses such as microfinance before it can get a full banking licence or hold a joint venture, adds Moody’s Ok. There can be lengthy delays when it comes to acquiring a banking licence, and simply buying a local bank to get a foothold in a foreign market can be expensive.

South Korea’s currency is an additional handicap when it comes to international growth, as it doesn’t have the global presence that other countries’ hard currencies do, says Shinhan’s Kim. To function abroad, Korean banks need to operate in other currencies, at a higher funding cost, leaving them a step behind US and European players, as well as some of the bigger Asian banks.

Korean banks are also held back by their limited track record overseas, as the banks’ ability to manage the quality of their overseas assets has not been tested through global credit cycles yet, says Ok. And some banks have been burned in the past, making them more prudent about international expansion today, he adds.

One of the most notable bank flops was KB Kookmin Bank’s attempt to gain a foothold in Kazakhstan. Kookmin acquired a 30% stake in Bank Center-Credit (BCC) in 2008 for $634 million, as part of its aggressive overseas expansion plan: it later raised its stake to 41.9%, with hopes of benefiting from BCC’s then-shining mortgage business. But the almost immediate pummelling by the global financial crisis left BCC battered and Kookmin bruised. 

Kookmin backed out of its investment in BCC in 2017. The embarrassment was so profound, it helped lead to the resignation of Kookmin’s chief executive Kang Chung-Won in 2010. And then Kookmin Bank’s Tokyo branch was nailed in 2013 for having weak internal controls, which led to unauthorized lending by employees and resulted in large loan write-offs.

In late 2017, NongHyup Bank came under fire for its failure to maintain an adequate anti-money laundering programme; the bank and its New York branch were fined $11 million. 

Of course many other banks stumble when they venture overseas into alien markets. Fitch’s Chang believes that in comparison to their international peers, Korean banks are strongly positioned to gain a foothold in other Asian countries.

“For a bank to succeed overseas, you also need to pay attention to the soft skills such as adapting to the local customs, and you have to be respected culturally too,” says Chang, pointing out what he sees as advantages of Korean banks. “For Korea, there could be a niche there, with the popularity of and rise of Korea’s entertainment industry comprising K-pop, drama serials and movies.”