Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
McKinsey urges Korean banks to enhance profitability
McKinsey & Company partner Kim Su-ho / Korea Times file
By Park Jae-hyuk
By Park Jae-hyuk
McKinsey & Company has displayed a skeptical outlook about the future of the nation's major commercial banks, despite the solid earnings they have enjoyed over the past few years, according to its Korean partner, Monday.
Kim Su-ho, a Seoul-based McKinsey partner specializing in the banking industry, told The Korea Times that Korean banks' competitiveness cannot be ensured, if they stick to their current business model.
“Korean financial services firms have posted trillions of won in earnings every quarter,” he said. “However, their returns on equity (ROE) have remained at about 8 percent to 9 percent, falling short of the 10 percent ROE that global investors expect.”
In the Global Banking Annual Review published in October, the consulting firm said a third of 595 banks worldwide, including those in Korea, will not be able to survive the next downturn unless they revamp their business models.
Korea's lucrative top four commercial banks ― Shinhan, KB, KEB Hana and Woori ― have been considered to be exempt from such warnings, as the McKinsey report did not provide details about Korean lenders and said endangered banks have shown profits being short of their costs.
Kim, however, was skeptical about the big four Korean banks' profitability.
“Each of Korea's four largest financial groups have huge assets,” he said. “But they are facing worsening profitability, because they don't differ in their services and are having unnecessary competition.”
According to the McKinsey report, Korea's major commercial banks are in a fierce rivalry, as they have market shares that slightly exceed 10 percent. The No. 1 bank only has a 13.7 percent market share, 2.5 percentage points higher than the No. 5 bank's.
Kim suggested Korean banks stop relying on the net interest margin, if they want their competitiveness to be guaranteed in the future.
He also said banks will have to use their workforces in seeking their new growth engine, as the McKinsey report urged global banks to enhance their productivity through digitalization.
“I don't think a manpower restructuring is the right answer,” he said.
Meanwhile, the partner did not expect M&As among Korean banking groups will take place in the near future, despite their fierce competition.
“Mergers between large financial groups are unlikely, because it may cause monopoly controversy and limit customer benefits,” he said. “Regulations, customer protection and various other things should be taken into account.”