By Kim Jae-kyoung
SINGAPORE — Shinhan Financial Group is seeking to buy more small non-banking firms in Indonesia, Vietnam, Malaysia and other emerging markets, said Yim Bo-hyuk, executive vice president of the financial group.
The move is in line with the group's key strategy aimed at diversifying revenue sources and overcoming challenges in the "new normal," which refers to low growth and low interest rates, according to the chief financial officer (CFO).
"We live in the new normal. To survive, we believe that the answer lies overseas," Yim said in a recent interview with The Korea Times during a global investors' conference held by Morgan Stanley in Singapore from Nov. 17 to 19.
"We are keeping an eye on countries in Mainland Southeast Asia, such as Indonesia, Vietnam, Malaysia and Thailand," he said. "Doing business there runs some risks but it can generate higher returns."
According to Yim, it is time to shift the globalization approach to create a sustainable profit model abroad. To that end, he said the group has employed two principles in going global — expanding the scope of globalization to non-banking and looking for small M&As.
"The key shift in our strategy is to break from old practices of opening more branches abroad and to set up joint ventures with small local players to serve locals," he said.
"Small firms with growth potential are better at localization. Real globalization is possible only when we offer services to locals," he added. "Given the current situation, it is risky to pursue large M&As."
The latest development under these principles is its purchase of Swadharma Indotama Finance, a financial subsidiary of Salim Group.
Salim is Indonesia's second-largest conglomerate whose businesses include telecommunications, automobiles, leasing, mining, energy and foods. Shinhan is Korea's largest financial group with total assets of 365.5 trillion as of September.
In late August, Shinhan Card, the largest card firm in Korea with around a 20 percent share of total transactions, announced that it had agreed to buy a 50 percent stake plus one share in the finance firm from Salim for around 10 billion won ($8.6 million) to launch a joint venture there.
Shinhan to take helm of Swadharma
Yim said the deal finally got approval from Indonesia's financial regulator and the firm registered the new entity in early November.
"The joint venture will start operations from January after finalizing administrative procedures, such as registering it as a subsidiary under our group," he said. Shinhan will take the CEO post but the name of the venture will remain Swadharma Indotama Finance.
Shinhan Card, which contributes up to 25 percent of net profits for its holding company, will utilize the network of the group in Indonesia to expand business across the country.Salim has a total of 12,000 retail outlets and 300,000 employees nationwide.
"We will first concentrate on enhancing its installment financing business using our card business knowhow and Salim's sales network. We are expected to start a card business late next year targeting local customers," he said.
So far the group has focused on expanding its banking business abroad but to maximize synergy it is now trying to bring its card business to emerging markets where its banking operations exist.
In November, the portion of Shinhan Bank's overseas net profits to total stood at 11.4 percent, sharply up from 8.6 percent in 2014 and 5.2 percent in 2011. The bank is the group's flagship with assets of 305.2 trillion won as of September.
Shinhan Financial also is considering buying an insurance firm if uncertainties surrounding the market are cleared away.
"There are lingering uncertainties, such as worsening profitability and capital increase issues associated with new accounting standards known as IFRS (International Financial Reporting Standard) 4,'" he said. "Once these disappear, we will consider pursuing even a large deal."
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| Yim Bo-hyuk, CFO of Shinhan Financial |
The move is in line with the group's key strategy aimed at diversifying revenue sources and overcoming challenges in the "new normal," which refers to low growth and low interest rates, according to the chief financial officer (CFO).
"We live in the new normal. To survive, we believe that the answer lies overseas," Yim said in a recent interview with The Korea Times during a global investors' conference held by Morgan Stanley in Singapore from Nov. 17 to 19.
"We are keeping an eye on countries in Mainland Southeast Asia, such as Indonesia, Vietnam, Malaysia and Thailand," he said. "Doing business there runs some risks but it can generate higher returns."
According to Yim, it is time to shift the globalization approach to create a sustainable profit model abroad. To that end, he said the group has employed two principles in going global — expanding the scope of globalization to non-banking and looking for small M&As.
"The key shift in our strategy is to break from old practices of opening more branches abroad and to set up joint ventures with small local players to serve locals," he said.
"Small firms with growth potential are better at localization. Real globalization is possible only when we offer services to locals," he added. "Given the current situation, it is risky to pursue large M&As."
The latest development under these principles is its purchase of Swadharma Indotama Finance, a financial subsidiary of Salim Group.
Salim is Indonesia's second-largest conglomerate whose businesses include telecommunications, automobiles, leasing, mining, energy and foods. Shinhan is Korea's largest financial group with total assets of 365.5 trillion as of September.
In late August, Shinhan Card, the largest card firm in Korea with around a 20 percent share of total transactions, announced that it had agreed to buy a 50 percent stake plus one share in the finance firm from Salim for around 10 billion won ($8.6 million) to launch a joint venture there.
Shinhan to take helm of Swadharma
Yim said the deal finally got approval from Indonesia's financial regulator and the firm registered the new entity in early November.
"The joint venture will start operations from January after finalizing administrative procedures, such as registering it as a subsidiary under our group," he said. Shinhan will take the CEO post but the name of the venture will remain Swadharma Indotama Finance.
Shinhan Card, which contributes up to 25 percent of net profits for its holding company, will utilize the network of the group in Indonesia to expand business across the country.Salim has a total of 12,000 retail outlets and 300,000 employees nationwide.
"We will first concentrate on enhancing its installment financing business using our card business knowhow and Salim's sales network. We are expected to start a card business late next year targeting local customers," he said.
So far the group has focused on expanding its banking business abroad but to maximize synergy it is now trying to bring its card business to emerging markets where its banking operations exist.
In November, the portion of Shinhan Bank's overseas net profits to total stood at 11.4 percent, sharply up from 8.6 percent in 2014 and 5.2 percent in 2011. The bank is the group's flagship with assets of 305.2 trillion won as of September.
Shinhan Financial also is considering buying an insurance firm if uncertainties surrounding the market are cleared away.
"There are lingering uncertainties, such as worsening profitability and capital increase issues associated with new accounting standards known as IFRS (International Financial Reporting Standard) 4,'" he said. "Once these disappear, we will consider pursuing even a large deal."
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