More foreign banks mull exit from Korea

By Kim Jae-kyoung

More foreign financial firms are considering closing their offices here or reducing operations because of an unfavorable market, amid the anemic performance of their head offices, according to analysts.

“I would not say that global banks see Korea as the number one country for exit but it is obvious that the country is in the upper ranks of the table,” Choi Jung-kiu, head of Asia Pacific Financial Institutions Practices at AT Kearney, told The Korea Times.

“I think most foreign players do not exclude the possibility of downsizing operations or pulling out of Korea, because Korea’s financial industry is losing attractiveness due to poor returns, complicated regulations and low predictability.”

According to informed sources, BNP Paribas, France’s largest banking group, is assessing the sustainability of its Korean operations every six months.

“BNP Paribas is known to have carried out an evaluation every six months about whether to maintain its Korean business or exit from Korea,” a Singapore-based source said, asking not to be named.

“Korea has become less attractive to foreign players as they are unable to get the high returns they did before, while operating costs are going up.”

The group, which entered Korea in 1976, denied the claim, saying it has no intention of leaving.

“Korea is an important market for BNP Paribas and we are committed to serving our clients in the Korean market,” Philippe Noirot, country head of BNP Paribas in Korea, said.

“Even though there have been rumors of foreign banks withdrawing from Korea, the number of foreign bank branches is actually stable at 39, meaning exits are matched by new entrants or transformations of rep offices into full-fledged branches. Korea still is a market with growth opportunities.”

This year, Barclays Capital decided to withdraw its investment banking division, following Citigroup (consumer finance) and Royal Bank of Scotland last year, and HSBC (retail banking) in 2013. UBS has also returned its banking license.

Standard Chartered Bank Korea (SC Korea) is another foreign-owned lender that market watchers believe is likely to follow suit.

“Affected by the group’s poor performance, the head office is looking to reduce or sell operations of unprofitable units abroad,” a source close to the British banking group said, on condition of anonymity. “Korea is one of the main targets.”

Standard Chartered had a net loss of $2.36 billion in 2015, the first yearly loss since 1989, because of poor earnings in its Asian operations, including the Korean unit, and soaring losses caused by the fall in commodity prices.

“The group does not officially say that it has the intention to leave Korea but chances are high that it will sell its Korean unit, if there is a buyer, as part of its restructuring of global operations,” the source said.

The claim does not sound implausible because SC Korea is losing market share. This dropped to 2.7 percent last September, from 3.8 percent in 2010, while the number of branches fell from 406 to 250. It cut 961 employees aged 40 or older, nearly 20 percent of its payroll.

A Standard Chartered spokesperson denied the claim, saying: “Korea remains an important market for Standard Chartered Bank and we are fully committed to our business in Korea.

“The bank aims to be ‘the best international bank in Korea’ by focusing on key business areas and achieving growth for both retail and corporate banking. We continue to support many Korean companies in their regional and global expansion via our strong global network.”

Market experts said the trend of global players exiting Korea and other markets is expected to continue for two reasons ― the earnings shocks of global banks and the unfavorable regulatory environment.

“Global banks are forced to cut costs in an aggressive manner after the earnings shock in 2015,” Choi, of AT Kearney, said. “They are conducting a massive layoff and closing some of the unprofitable overseas operations.

“Also, their operations in Korea are facing further deterioration in profitability as market-unfriendly regulations have increased costs.”

Choi called on the regulator to change the regulatory scheme to a “negative” system from a “positive” one.

Korea's scheme is based on a “positive” system, under which new services and businesses should be developed to meet the requirements stipulated in the regulations. This prevents foreign players from introducing products sold abroad.