Foreign banks closing down amid tough times
By Park Hyong-ki
Global financial companies operating in Seoul are moving to either close down or downsize their corporate banking services amid a manufacturing downturn beset by misguided state policies and weakening growth outlook, industry sources say.
As they see their return on assets fall into negative territory, they are left with no options but to shut down their bank branches and hand over some portion of their corporate banking operations to their asset management and investment banking units.
Most recently, Macquarie Group is following this path, as it plans to close down its bank branch and merge some of its corporate banking with Macquarie Securities.
This is part of the Australia-based group's “global master plan” to merge some of its key operations, including securities and commodities trading to make them more efficient and cut costs.
Also, the Seoul-based group said it will be focusing more on investment banking and asset management.
“As a result of this consolidation, commodity products offered through the bank branch will be included in Macquarie Securities Korea's services. Foreign exchange trading and corporate lending will no longer be offered,” a Macquarie spokeswoman said.
It seeks to complete the reorganization by January 2019. The group is in talks with the regulator to gain final approval for the bank's shutdown, she added.
It has also notified its corporate customers. The bank had 20 employees.
“Every effort will be made to minimize the impact on the staff and our clients,” the spokeswoman said.
Following big names such as Goldman Sachs, RBS, BBVA and UBS closing down their branches and withdrawing, there are now 38 foreign banks with 45 branches, down from a respective 40 with 47 in 2017, according to the Financial Supervisory Service (FSS). In 2016, the number stood at 43 foreign banks with 50 branches.
When UBS gave back its banking license to the financial regulator as it shut down its branch in 2017, UBS Asia Pacific President Kathryn Shih told the local press that it was part of the Swiss-based group's global reorganization plan.
She added it decided to do so as its investment banking unit could sufficiently handle and provide corporate banking for its institutional customers.
Seoul losing attractiveness
Experts said that due to the prevailing circumstances, foreign players should stick to asset management and investment banking.
Also, this is because foreign-invested banks cannot get into retail banking as can local commercial banking giants, they added.
“They are shutting down because they are losing profitability amid sluggish corporate investment,” said Kim Sang-kyung, chairwoman and chief executive of the Korea International Finance Institute.
“Korea has been heading in the opposite direction over the years. U.S. private investment has been rising and household lending decreasing over the past decade. Here, it has been the reverse.”
A weaker business outlook has inevitably made foreign banks think twice before continuing their business-to-business (B2B) services, even though their B2B lending was not considered a “core part” of their overall financial services, industry sources say.
One source also mentioned besides state policy mishaps following the government's focus only on boosting income distribution, Korea has not had a “sustainable roadmap” for the future of finance.
Under the cloudy economic forecast, this has made the financial market “less attractive,” he added.
Another source said “tightening regulations” is also one of reasons for the market becoming unattractive, leading foreign companies to reassess the returns on their investments here in comparison to other countries with higher growth potential.