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US subsidiaries face worsening profitability over tougher regulation
By Park Jae-hyuk
The nation's commercial banks are facing declining earnings in the U.S. and European markets, while enjoying solid growth both in sales and profits in Southeast Asia, data showed Tuesday.
Shinhan Bank America, a U.S. subsidiary of Shinhan Bank, posted a 475 million won ($391,000) net profit in the first half of 2019, down 84 percent from a year earlier. Shinhan Bank Europe, the bank's European subsidiary, turned to a loss, suffering a 120 million won net loss, due to the cost for moving its office in June.
KEB Hana Bank, which runs three U.S. subsidiaries, posted a 581 million won net profit for KEB Hana New York Financial and a 1.49 billion won net profit for KEB Hana LA Financial. Their net earnings dropped by 71 percent and 29 percent, respectively, from a year earlier.
Hana Bancorp, the bank's another U.S. subsidiary which suffered a 2.62 billion won net loss in the first half of 2018, showed a 3.51 billion won net loss again in the first half of 2019. Its German subsidiary posted a 2.37 billion won net profit, a 13 percent decline year-on-year.
Woori America Bank, a U.S. subsidiary of Woori Bank, posted a 10.4 billion won net profit, down 6 percent from a year ago.
Such results are in contrast to their performances in Southeast Asia.
Shinhan Bank's Cambodian subsidiary posted a 4.51 billion won net profit, up 60 percent from a year ago. KB Kookmin Bank Cambodia's net earnings rose 45 percent to 1.97 billion won.
Woori Bank Vietnam posted an 8.1 billion won net profit, a 130 percent growth year-on-year. Woori Finance Myanmar and Woori Wealth Bank Philippines turned profits, posting 587 million won and 161 million won net profits, respectively.
The commercial banks attributed their difficulties in developed countries to rising compliance costs incurred by stricter regulations in those countries.
"Due to the U.S. financial authority tightening anti-money laundering regulations, we have had to spend more on compliance management and consulting," a Shinhan Bank official said.
Since the New York State Department of Financial Services imposed an $11 million fine on NongHyup Bank's New York branch in 2017, Korean banks have spent a large amount of money on improving compliance management systems of their overseas subsidiaries and branches.
As they have enhanced their monitoring systems and hired employees with expertise in compliance management, their profitability in developed markets has worsened.
Against this backdrop, some observers suggested the banks change their subsidiaries in developed countries into branches, which are under the direct control of their Korean headquarters.
They have also been urged to shift their main focus to the lucrative Southeast Asian market.
The commercial banks, however, said they cannot leave the U.S. and Europe, because they deal with key currencies, such as the U.S. dollar and euro.
The banks also expected to recover in those markets, saying their recent spending was temporary.
"Once we finish setting up our system, we will not need to spend more," the Shinhan Bank official said.





































