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Lenders wary of political risks in Russia, China, Central Asia
By Park Jae-hyuk
Immediately after the New Year began, the Moon Jae-in administration declared it would speed up efforts for its New Northern Policy in 2020, as Chinese President Xi Jinping and Russian President Vladimir Putin are supposed to visit Korea during the first half of the year.
Nevertheless, the nation's four largest financial groups ― Shinhan, KB, Woori and Hana ― remained cautious about their expansion in the area embracing Russia, Northeast China and Central Asia, according to a recent survey by The Korea Times.
Their attitude is in stark contrast to their supports for the New Southern Policy which was the key agenda last year in line with the Korea-ASEAN Commemorative Summit that took place in Busan.
Throughout 2019, they expanded rapidly in Vietnam, Indonesia, Cambodia and Myanmar to seek new income sources in the fast-growing markets.
The government hopes the country's private enterprises will support the New Northern Policy as they have done the New Southern Policy.
President Moon Jae-in said in his New Year address, Jan. 7, that Korea will diversify its key diplomatic partners by accelerating efforts for the New Northern Policy.
"As Chinese President Xi Jinping and Premier Li Keqiang are scheduled to visit Korea this year, the government will make efforts so that Korea-China relations can make a leap forward," he said.
"Russia is a core partner of the New Northern Policy. This year, the 30th anniversary of establishing diplomatic relations between the two countries, I hope that a new turning point will be made in the New Northern diplomacy."
Deputy Prime Minister and Finance Minister Hong Nam-ki told reporters Jan. 9: "The government tried to pioneer new export markets with the New Southern Policy in the ASEAN region last year. I expect the government policy will focus on the New Northern countries this year."
The financial regulator has been forcing financial institutions more strongly, so as to have them keep pace with the government initiative.
Kwon Dae-young, director general of the Financial Services Commission's financial innovation bureau, told The Korea Times the nation's financial institutions and fintech firms need to pioneer the New Northern countries.
"In Central Asia, there are many under-banked and unbanked countries with few banking accounts," he said.
"But nearly 100 percent of population in those countries own mobile devices, so there must be opportunities for fintech businesses."
The nation's banking groups, however, have been skeptical of the financial authorities' outlook for the area's growth potential, concerned about political risks inherent in doing businesses there.
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Korean banks in New Northern states
Even before the administration pursues the New Northern Policy, the four financial groups have actually tapped the Russian, Northeast Chinese and Central Asian markets.
Among them, Hana Financial Group has been most aggressive in doing businesses there.
The company having a taskforce for the New Northern Policy has concentrated on its businesses in three Northeastern provinces of China ― Liaoning, Jilin, and Heilongjiang.
Hana Chairman Kim Jung-tai formed a partnership with the Jilin provincial government in July 2018, and Vice Chairman Ham Young-joo was selected as an honorary citizen of Changchun City in the province in October 2019.
The group, which has run KEB Hana Bank's Russian subsidiary since September 2014, also hosted a forum in Vladivostok in June 2019 to seek Korea-Russia economic ties in finance, tourism and logistics in the Far East.
In addition, Hana Financial Investment CEO Lee Jin-kook visited Mongolia in June 2019 to discuss the country's capital market with Mongolian Parliament Speaker Gombojav Zandanshatar and form a partnership with Golomt Financial Group, the largest financial group there.
Despite these efforts, Hana was cautious about additional expansion in those countries.
"We have yet to come up with any plan to expand our businesses there," a Hana spokesman said.
"We need more market studies, because it differs from the Southeast Asian market that has come under the spotlight regardless of the government policies due to its rapid growth."
Other financial groups were no different from Hana in their views on the New Northern Policy.
Shinhan Financial Group, which has a subsidiary in Kazakhstan and offices in Russia and Uzbekistan, said it has focused on financing Korean companies there, rather than pushing ahead with localization.
According to the group, it has yet to generate a significant outlook in those countries, although Chairman Cho Yong-byoung accompanied the President on his trip to three Central Asian countries in April 2019.
"Because the New Northern countries have shown slower growth than the New Southern countries and their political systems are unstable, Korean financial firms have been restricted from expanding," a Shinhan spokesman said.
Woori Financial Group, which has a subsidiary in Russia, said its global strategies for this year do not include measures for the New Northern Policy, although Chairman Son Tae-seung formed a partnership with a Kazakh state-run investment agency in April 2019 when he accompanied the President on his trip to three Central Asian countries.
KB Financial Group, which suffered a traumatic failure in Kazakhstan, said it has no plans for expansion in the New Northern countries.
KB Kookmin Bank exited the Kazakh market in 2017, after suffering almost a 1 trillion won ($864 million) loss.
The bank acquired a 41.9 percent stake in the Kazakh's fifth-largest Center Credit Bank for 954.1 billion won in 2008 and sold it for 158 billion won in 2017 as it could not handle the snowballing losses after the global financial crisis.
Since then, KB has not established a network in the New Northern Policy countries.
Yet, it partially financed a 110 billion won Korean-Eurasian cooperation fund which has been used to finance Korean companies participating in infrastructure and urban development projects in the Commonwealth of Independent States, the Caucasus countries and Mongolia.
Potential demand from inter-Korean cooperation
Experts said the government should guarantee political stability if it wants financial institutions to enter the New Northern countries.
"China is still a socialist state, and there exists concerns about political risks in Russia, although it underwent structural change," said Lee Yoon-sok, the director of the Korea Institute of Finance's center for international financial cooperation.
The researcher expected financial firms may seek opportunities from possible inter-Korean economic cooperation in Northeast China and Russian border areas, if political instability is resolved.
"It will be recommendable for financial firms to enter Northeast China and Russia in advance, because there will be a demand for financing when inter-Korean development projects begin near the border areas," he said.
As for Central Asia, however, the researcher admitted more market studies are needed.
He said his think tank specializing in financial research will review each Central Asian country to understand their financial services needs.
