Globalization M&A Must Item for Bank Globalization
This is the last of nine-part series of articles on the globalization of Korean banks, with suggestions for successful globalization.
By Kim Jae-kyoung
Staff Reporter
For Korean banks, globalization is not a matter of choice but a matter of necessity, with domestic financial market becoming rapidly saturated due to fierce competition among local lenders, leaving little room for growth.
The challenge for Korean banks is that they lack scale beyond Korea. Therefore, mergers and acquisitions (M&A) is a must for them. This requires focusing more outside the country and bringing talent from overseas. They are still inwardly focused and have yet to embrace the globalization concept in their management systems.
In this regard, there are several issues to be addressed when going global. First, Korean banks must come up with their own globalization model to capitalize on their expertise.
Since local lenders are lagging far behind global players in terms of brand awareness, they should seek to increase their overseas presence by taking over under-performing local banks rather than by just opening more overseas branches to serve ethnic Koreans there.
``For true globalization, local banks must change their globalization model. Most importantly, they should expand their business scope to local companies from ethnic Korean firms,'' said Choi Seung-nam, head of the Global Business Division at Woori Bank.
Secondly, the market environment should be further developed in a way to help domestic banks enhance their global competitiveness. Korean markets are not flexible enough to enable banks to employ a variety of business strategies due to the rigid labor market and heavy regulation.
``Since Korean banks have served in underdeveloped environments, they have been unable to secure competitiveness in becoming a leading player on the global market,'' AT Kearney Korea Chairman Choi Young-sang said.
Thirdly, they should choose core areas and key markets and focus on them. Experts said that retail banking is the area where Korean lenders should focus on as they have global competitiveness in this sector. Santander is a good benchmark. The Spanish lender has focused on its core expertise of retail banking, which produced around 80 percent of its profits in 2008.
``I think that domestic lenders are globally competitive in retail banking. An M&A in the retail sector will provide a breakthrough for local banks in the future,'' Shinhan Bank President and CEO Lee Baek-soon said.
Regarding geographic expansion, Asian markets, such as China, India, Vietnam and Indonesia, as well as East European markets, such as Poland, are considered as promising areas where Korean lenders can compete well.
Fourth, domestic banks should focus on localization as Korean banks' overseas branches are not fully localized in terms of recruitment and asset portfolio.
``Korean banks should come up with a clear localization strategy, set up a global management model and implement it with a detailed action plan,'' said. Kim Hee-jip, country managing director of Accenture Korea
``To put it briefly, they should make it clear which customers they will target, which country they will go to and which product they will sell,'' he added.
Fifth, in order to emerge as a force in the global market, Korean banks should focus more on capital market-related activities (investment banking and wealth management) and international business than on traditional banking (loans and deposits). They should recognize that these are areas that require a different culture, talent pool and capabilities.
Finally, local banks should equip themselves with an open-minded corporate culture. They should be ready to employ people from different countries. They should have a culture that will accept, attract, motivate and stimulate those people as well as reward structure that will satisfy and incentivize them.
The key to successfully achieving these issues is not to do it over the short term but to take it one step at a time. Local banks should come up with long-term plans and execute them in a resolute manner to carry out the integration of newly acquired units according to a timetable.
Kookmin Bank's investment in Kazakhstan's Bank CenterCredit (BCC) is likely to be a litmus test for local banks' globalization drive as it is considered a major step above past forays made by Korean banks into the international market.
In March last year, Kookmin agreed to invest 620 billion won in BCC to purchase a 30 percent stake. It seeks to increase its holdings further up to 50.1 percent for managerial rights through additional stock purchases or new share offerings. Kookmin is now transferring core capabilities to BCC through participation in management.
'Globalization Should Be Seen as Journey'