Banks urged to diversify overseas

By Kim Jae-won

The financial regulator said Thursday that it will give incentives to local banks expanding into new overseas markets to diversify their revenue sources as well as increase their level of globalization.

The Financial Supervisory Service (FSS) said that lenders will be graded one notch higher in its evaluations when they start businesses in a country where no Korean bank has advanced before. The new regulation will be effective from next year.

“Korean banks have focused on a few countries such as China and Vietnam. We want to them to diversify their overseas markets to go global,” said Ryu Chan-woo, a director general at the FSS.

The announcement came amid the regulator’s push for the globalization of local financial institutions as part of its financial reform agenda. Korean banks have a low level of globalization compared to their manufacturing counterparts, including key players Samsung Electronics and Hyundai Motor, which are well represented on the international stage.

The FSS said that local lenders’ globalization index, an indicator showing portions in assets, revenue and human resources from overseas markets to total business, marked 6.7 percent in June, up from 5.5 percent in December, but still having a long way to go.

To dissuade local lenders from investing in countries where Korean banks already operate, the FSS said it will cut the ratings of those launching new branches in China and the U.S. where many already run a business. Eight local banks have a foothold in China while seven are doing business in the U.S.

Recently, they are rushing to Vietnam with five banks having entities there, according to the agency. The regulator also advised lenders to employ high-ranking officials from among the local people to reflect their influence on markets.

Korean lenders have set their eyes on globalization over the last few years, but have seen little improvement due to the lack of a skilled workforce as well as language and cultural barriers. Most of their business are supporting Korean corporations doing business there, failing to reach the local people.

Korean banks are running a combined 163 branches overseas, including 53 liaison offices, as of June. Their key destinations are the U.S., China and Vietnam.

Among them, KEB Hana Bank has the largest overseas network in 24 countries, including the U.S., China, Japan, Russia and Canada.