By Kang Seung-woo
Staff reporter
With domestic financial markets overloaded, local lenders have turned their gaze outside of Korea, as the Asian market is beckoning as a new revenue source.
Domestic banks, including Shinhan, Hana, Industrial Bank of Korea (IBK) and Korea Development Bank (KDB) have sweated in expanding to Asian countries, such as India, Indonesia, China, Vietnam and further Central Asian countries, via mergers and acquisitions (M&A) and localization.
Among those destinations, India is emerging as the hottest place as the two countries agreed last August on the Comprehensive Economic Partnership Agreement (CEPA). Under the accord, Korean banks can open up to 10 branches until 2013 after getting approval from Indian regulators.
CEPA is a free trade agreement between South Korea and Asia's third-largest economy, India.
Shinhan, the only local player to operate branches in India so far, earned a final nod from the country to open its third arm in Vellore, which houses approximately 150 subcontractors of Hyundai Motors. Its two other branches are located in New Delhi and Mumbai.
"As India is an emerging market, it has high potential to grow," a Shinhan Bank official said.
"In addition, the market size, plentiful manpower and abundant resources are also appealing points."
Woori Bank is raising its hope of launching a branch in Chennai, India for the first time among Korean banks after getting approval from the Financial Services Commission (FSC) last month.
The nation's second-largest lender is waiting for a green light from the Indian regulators.
The city, the fourth-largest in India, has been coveted by Korean banks because a Hyundai Motors factory and 50 of its affiliates are located there.
Korea Exchange Bank (KEB) and Hana are considering expanding their liaison offices into local branches before the end of this year.
Indonesia has also drawn much attention.
The country, which has the fourth largest population with 240 million inhabitants, posted a 4.6 percent economic growth in 2009 despite the global financial turndown. It is Korea's fifth-largest trading partner and about 1,200 companies have business connections there.
Shinhan Financial Group has been seeking to find an M&A target to establish a subsidiary there.
"As a lot of Korean companies have branches in Indonesia, we are looking for opportunities there," said an official of Shinhan Financial Group.
"We intend to advance to Indonesia in the form of a local subsidiary via a takeover or joint venture."
In Indonesia, a company needs to have a $300 million capital to set up a subsidiary, so taking over underperforming local banks is seen as a better idea.
Woori also plans to launch a local office in June, while Hana Financial Group is pursuing to take over a local bank. KB Financial and IBK look to push into the Indonesian market, as well.
Local banks are also making efforts to strengthen their footholds in China, Vietnam and Central Asia.
Hana bought up to a fifth of the Bank of Jilin in China, while KDB is seeking to take over a local bank in Central Asia. IBK is in negotiations with the central bank of Vietnam on a joint-ventured bank.
Shinhan plans to launch its two Vietnamese branches in Hanoi and Binh Duong in the second half of the year.
Experts said that the local lenders are seeking to increase their presence in Asian markets as they are less vulnerable to fallout from the Southern European crisis and they have similar cultures.
In addition, local banks can take advantage of their advanced know-how and experience in finance and IT, they added.
Meanwhile, according to the Financial Supervisory Service (FSS), Korean banks' overseas operations suffered a 7.8 percent decline in their 2009 earnings from a year ago on increased loan-loss reserves and squeezed commission income.
The combined net income of 93 foreign outlets - 54 branches and 39 subsidiaries - run by 11 local banks came to $286.4 million in 2009, compared with $310.5 million the previous year.