Banks suffer decline in earnings in Europe

By Jhoo Dong-chan

The nation's commercial banks are achieving meaningful success in their entry into overseas markets, but Europe seems to be a high hurdle for them since they suffered a decline in earnings there in the first half of the year.

Observers said it is essential for them to clinch investment bank deals to sustain profitability in the European market, but they have experienced difficulties in doing so due to a lack of capital compared to their competitors there.

Growing uncertainties in the global financial market are another unfavorable factor behind their disappointing earnings in the first half.

According to data released by the Financial Supervisory Service (FSS), Tuesday, Woori Bank's corporate body in Europe suffered a 1.5 billion won ($1.24 million) net loss in the first half of the year.

The bank established the corporate body in Frankfurt in October, focusing on loan and remittance services for Korean firms in the European Union bloc. It said it would seek entry to the East European market once the bank's corporate body establishes itself.

Experts said Woori's plan will likely take time to be realized.

“The nation's commercial banks are strengthening their presence in the Southeast Asian market, but Europe is different,” said an industry insider who asked not to be named.

“Domestic financial firms are still small players compared to the financial behemoths in Europe. It would be difficult for them to secure any meaningful market presence since they are short of capital.”

KEB Hana Bank Europe, which posted a 2.7 billion won net profit in the first half of last year, also suffered a 10 percent year-on-year decline in earnings to 2.4 billion won in the period.

Shinhan Bank's corporate body there also suffered a 120 million won net loss.

The FSS said they need to secure enough capital to participate in major investment banking projects there.

“Domestic banks' cash reserves are comparably weaker than those of local financial players. A partnership with a local player could be a solution to overcome this difficulty,” said an FSS official.

The banks said they will push further into the European market to gain profits.

“The European market is a bridgehead for the nation's banks' entry into the African and Middle Eastern markets,” said an NH NongHyup Bank official.

“These banks will push further to diversify their business portfolio in their search for future growth engines.”