Korean banks struggle to stay afloat in China

By Jhoo Dong-chan

The nation's banks are facing another hurdle in the Chinese market as Beijing Hyundai Motor Company, a Chinese joint venture of Hyundai Motor, decided to halt the operation of its No.1 plant in Beijing next month.

They were just getting a breather now after experiencing difficulties in the market two years ago due to the Chinese government's economic retaliation against Korean firms because of Seoul's decision to deploy a Terminal High Altitude Area Defense (THAAD) here.

The carmaker's decision is likely to deal a severe blow to about 130 Korean subcontractors there. Korean lenders managed to recover their businesses through loans to these firms in the Chinese market over the past two years, but are now required to reach out to local firms there to maintain their current profitability.

KB Kookmin Bank said the bank's local corporate body there set up a sales department last month to strengthen its ties with Chinese companies.

“KB Kookmin Bank has focused its business with Korean firms in Chinese. In a bid to widen the bank's operations there, we decided to establish a sales department,” a KB Kookmin Bank official said.

The move is considered the bank's exit strategy to maintain its profitability there by replacing Korean firms with local businesses.

Not only KB Kookmin but also other Korean commercial banks in China have concentrated mostly on their loan business with Korean firms since their entry.

Entering the market in 2012, KB Kookmin posted disappointing earnings of 1.1 billion won ($948,112) when tension between the two countries was at its peak in 2017. The bank's earnings recovered at 14.8 billion won last year.

Likewise, KEB Hana, which posted a 37.3 billion net profit in 2017, managed to reach 54.4 billion last year. Shinhan's earnings were also 8.1 billion won in 2017, but jumped to 21.9 billion last year while Woori stretched its 14.2 billion won earnings to 21.9 billion won in the period.

“Hyundai's slump in the Chinese market is already exercising a negative impact on Korean subcontractors there,” Meritz Securities researcher Kim Joon-sung said.

Banks said, however, they don't plan to exit from the market.

“A number of Korean firms are now eyeing the Southeast Asian market, reflecting its rapid growth rate,” a commercial bank official said.

“China's financial market has yet to be fully opened. If it does, we believe there will be other opportunities.”

According to the Financial Supervisory Service, the total assets of the nation's commercial banks stood at $26.43 billion as of the end of December, up 0.2 percent from a year earlier.