By Kang Seung-woo
With the global financial crisis fading, local banks are rushing abroad to get the upper hand in rapidly-growing emerging markets, particularly China and Vietnam, by re-charting their globalization strategies.
There are two forces behind their aggressive expansion abroad. One is that profitability has been squeezed here as the local market has become saturated. The other is that retail markets in China and Vietnam looks promising as the countries are expected to see a surge in the wealthy middle-income class in line with a fast economic growth.
Korea Exchange Bank (KEB) has recently joined the rush to the emerging markets after establishing its Chinese subsidiary in Tianjin on Aug. 2. Shinhan Bank plans to add two branches in Vietnam to accelerate the expansion race in the area.
“Banks have overhauled their globalization strategies by pursuing localization in emerging markets. In the past, they focused on big cities in advanced countries to finance local companies operating there,” said an official of the Financial Supervisory Commission (FSC).
“Following the global crisis, they are seeking to become a major player in emerging markets because they believe that they can compete with indigenous players and generate larger profits there,” he added.
Shinhan is seen as the front runner in the overseas expansion race.
The bank, which set up its first subsidiary in May 2008 in China, owns five branches under its subsidiary ― Beijing, Shanghai, Tianjin, Qingdao and Wuxi ― and six sub-branches. Kookmin Bank, the nation’s largest lender by assets, has three branches in Guangzhou, Harbin and Suzhou.
Woori Bank, the nation’s first player to expand to China in November 2007, has a subsidiary in Shanghai and five branches of its local subsidiary in Beijing, Shanghai, Shenzhen, Suzhou and Tianjin. Hana Bank is also active in its foray into the one of the world’s fastest-growing major economies with 13 branches under its subsidiary.
KEB also has four branches and three sub-branches in the world’s fastest growing economy, while the Industrial Bank of Korea (IBK)’s branch has spread into five cities.
China most promising market
China is seen as the most popular destination as it is expected to be the biggest private banking (PB) market in the world within five to 10 years in line with a sharp increase in its middle-income population.
Shinhan has already built an online banking system across China and plans to introduce debit cards in the second half in its bid to fortify retail banking with native Chinese.
Woori has strived to localize its subsidiaries and branches, hiring the natives as branch managers and employees and contributing to society.
IBK plans to enlarge its Chinese network to 10 this year and minimize the number of Korean employees dispatched there.
Market analysts said that the expansion into the emerging market is an inevitable action to secure future revenue sources.
“Overseas expansion is a must for local banks over the long term because they cannot beef themselves up in the Korean market, which has a limitation in pumping up size,” said Kwon Soon-woo, chief economist at Samsung Economic Research Institute (SERI).
“In addition, banks cannot gain a stranglehold in the advanced market. That is why they are targeting the emerging markets, such as China and Vietnam.”
Korean lenders are also seeking to take hold of the foremost place in Vietnam.
Shinhan has two local subsidiaries ― Shinhan Vietnam Bank and Shinhanvina Bank ― and under these, there are a total of seven branches.
In addition, it is poised to set up two more branches in Hanoi and Binh Duong.
Others have strived to gain a foothold by setting up a branch and liaison office.
But their excessive eyes on the two countries have raised concerns over overheating competition. As a matter of fact, all but Shinhan have operations in Hanoi and Ho Chi Minh.
The financial watchdog is putting the banks’ overseas expansion under the microscope.
“We are keeping a close watch on local lenders’ move to go abroad,” the FSC official said.
Meanwhile, the FSC said that local financial companies, including banks, card firms, brokerage houses and insurance firms, have sharply increased their operations in China and Vietnam over the past decade.
It said that the 57 out of their 319 operations are located in China and 38 in Vietnam as of June. It is a steep increase compared to December 1999, when there were 24 in China and nine in Vietnam.
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