Financial hub: pipe dream for Korea?

Francois Perol, chairman and CEO of BPCE Group
/ Korea Times photo by Choo Sung-ho

French banker says Korea lags far behind Hong Kong and Singapore

By Lee Hyo-sik

Korea has to make greater efforts if it wants to become a financial hub like Hong Kong and Singapore, according to the head of a French retail banking group, who suggests Asia's fourth largest economy introduce global standards and nurture talented manpower.

In a recent interview with The Korea Times' Business Focus, Francois Perol, chairman and CEO of BPCE Group, said the country should work harder to strengthen the competiveness of its financial industry and create a more foreigner-friendly business environment.

Perol visited Korea on Dec. 5 to 6 as part of BPCE's annual investor relations road show to meet with its corporate clients and investors in Asia Pacific countries. BPCE, France's second-largest banking group, has two flagship retail units - Banque Populaire (BP) and Caisse d'Epargne (CE). The group also operates the wholesale banking arm of Natixis, which has established extensive presence in Korea and other Asian nations.

"Korea is an interesting market for foreign banks because it is a developed country with a wide consumer market and high amounts of savings. But it cannot be really compared to financial hubs such as Hong Kong for China and Singapore for Southeast Asia," the chairman said. "Korea and France have a lot in common in terms of financial institutional landscapes. Both countries have to make more efforts to enhance their financial market competitiveness and become an important player on the global stage."

Perol said latecomers in the financial services industry may have difficulty catching up as this industry involves more human factors than the manufacturing industry does, indicating that Korea faces great difficulties in repeating its success in manufacturing in the financial domain. He said Korea has to advance intrinsic factors such as language and culture in the financial market, in addition to boosting capital capacity and expertise quality.

The chairman suggested that Korea foster more talented manpower, build a more foreigner-friendly business and residential environment, and introduce more international standards if it seeks to become a key player in the global financial market.

In 2003, the former Roh Moo-hyun administration unveiled an ambitious scheme to transform Korea into a Northeast Asian financial hub to nurture the financial industry as a new growth engine. But the scheme failed because of ineffective policies, excessive regulations and lack of incentives for foreign firms.

Former President Lee Myung-bak abandoned his predecessor's plan, following the global financial market crisis in late 2008. Over the past five years, many foreign banks and asset management firms, including Goldman Sachs Asset Management, left the country. The current Park Geun-hye administration has been disinterested in resuming the financial hub plan.

Korean economy faces fresh challenges

When asked about Korea's efforts to attract foreign investment, Perol said Asia's fourth largest economy needs to implement structural reforms in a wide range of fields.

"Korea has achieved what it is today in the international markets, properly satisfying the required global standards. But again, Korea and France have a lot in common, and this encompasses the necessity to do more to remain as competitive as possible in the global environment," the chairman said.

Many foreign firms have cited the country's regulatory uncertainty and militant labor unions, among others, as main culprits behind non-Korean companies' reluctance to establish or increase presence here.

France is also known as having a strong labor union and mandating companies to provide workers with generous welfare benefits.

"It is only by more growth and more jobs that Korea and France can improve the standard of living for their people. This means the environment for doing business must be reasonably attractive. But it seems to me that both nations need to implement some structural reforms in many areas," he said.

When asked about the strengths and weaknesses of the Korean economy, Perol said Korea faces a host of new challenges, including the weakening Japanese yen.

"Korea has entered into the category of rapidly advancing countries by having successfully occupied leading positions in several industrial sectors of the global economy such as shipbuilding, information technology, telecommunications, semiconductors, automotives and more," the chairman said. "Its success is largely due to the Korean government's effective strategy focusing on ‘chaebol.' The Korean government provided supports to family-controlled conglomerates so that they can produce and export a wide range of competitive industrial products."

However, Korea faces a challenge with changes happening in Japan, such as the weakening yen, he said, indicating that the weaker yen as a result of "Abenomics" will weigh down heavily on Korea's exports as made-in-Korea products become more expensive than Japanese ones in the global market.

BPCE to expand Asian operations

Perol said BPCE will mobilize more resources to expand its presence in Asia, stressing that the region is where most of the global growth will take place over the next decade.

BPCE's two flagship retail units, BP and CE, focus mostly on France and European countries.

In contrast, its wholesale banking unit Natixis has established operations in most parts of the world. BPCE owns a 72-percent stake in Natixis, where Perol also serves as CEO. The bank's business includes raising investment funds from institutional investors and extending financing to corporations.

The chairman said he plans to turn Natixis into one of the world's leading investment and corporate financing institutions by boosting its activities in the rapidly growing Asia-Pacific region.

"Our Asian business is mainly wholesale banking, with Natixis having set up extensive presence in Asia, including Japan, Hong Kong, Singapore, Taiwan and Korea," Perol said. "Within the recent trends in the global economy and finance, Asia is the most attractive and fastest growing market.In line with our new strategic plan for putting more emphasis on internationalization, the Asian markets are the right target for our expansion, especially in the areas of wholesale banking, investment solution, and specialized financial services."

Natixis's Asia Pacific regional hub is in Hong Kong and its main branch for South Asia is in Singapore. It also operates branches and subsidiaries in Shanghai, the Ho Chi Minh City, Sydney and Tokyo. The wholesale bank has an office in Korea, which mainly facilitates contacts between the Hong Kong headquarters and Korean corporate clients.

"We will increase our corporate client base in China, Southeast Asia and Australia to be a major player in sectors such as energy, commodities and infrastructure, while acting as a niche player and a solution house for the sophisticated needs of our clients in North Asian countries by reinforcing our distribution capabilities," the chairman said.

But Perol said Natixis has taken a cautious approach toward expanding its Korean operation, saying that the bank first needs to secure more clients here.

"We will first build up our relationship and confidence with our Korean clients to a sufficient level before we consider upgrading our presence in Korea.The country is one of our most important markets and we will move forward on a step by step basis, confirming our confidence to sustain the investments," he said. "If things go as planned, I think we will be able to open a Korea office by 2015."

Europe weighs down on global economy

When asked about his global economic outlook, Perol projected the world economy will expand about 3.5 percent in 2014 from the previous year.

"As a whole, the global economy is expected to resume its growth momentum from the pre-crisis level next year, thanks to a quicker recovery in the U.S. as a result of its booming energy sector," the chairman said. "The world will also benefit from strong growth in Asia. I think Asia's growth potential is 10 times that of Europe and twice that of the U.S. Asia is where the future lies."

However, Perol said the world economy may recover at a slower pace than expected because of the sluggish European economy. "The slower recovery in Europe may hinder the global growth momentum. To jumpstart the world's largest economic zone, we need to strengthen the role of the European Central Bank and other institutions so that they can introduce more concerted coordination efforts in macroeconomic, tax, and fiscal policies for the eurozone."

Besides the stronger coordination of economic policies, European countries need to implement structural reforms to boost their competitiveness, the chairman said. "This means individual economies have to reduce public spending, lessen regulations and introduce growth-centered policies. Germany has done a good job as it took drastic structural reforms earlier than France and other member countries did."