Banking Sector's Overseas Business Faces 'Red Light'... "There Is a Breakthrough"

Many Companies Show Poor Operating Revenue in Q3 This Year
Limitations in Overseas Expansion Due to COVID-19 Spread
Avoid Reckless Expansion and Establish Localization Strategies Based on Thorough Analysis

[Asia Economy Reporter Park Sun-mi] Although domestic banks are aggressively expanding overseas to strengthen their global competitiveness, they have not achieved significant results due to COVID-19 and global economic uncertainties. This is why experts emphasize the need to avoid indiscriminate expansion and to establish localization strategies based on thorough analysis when entering foreign markets.

According to the Financial Supervisory Service's electronic disclosure system and the banking sector on the 11th, the third-quarter performance of domestic banks operating in major countries such as the United States and China, where asset sizes are relatively large, has been sluggish. Woori Bank's U.S. branch recorded operating revenue of 76.938 billion KRW as of the end of the third quarter this year, falling short of 82.227 billion KRW at the end of the third quarter last year. Woori Sodara Bank in Indonesia also posted 166.921 billion KRW at the end of the third quarter, slightly below 167.999 billion KRW at the end of the third quarter last year, and significantly lower than 231.132 billion KRW at the end of last year.

Shinhan Bank's U.S. branch recorded operating revenue of 61.211 billion KRW in the third quarter, a slight decrease compared to 61.452 billion KRW in the third quarter of last year. Its China branch posted 159.355 billion KRW in the third quarter this year, down from 175.964 billion KRW a year earlier. Hana Bank's China and Indonesia branches recorded operating revenues of 340.182 billion KRW and 269.674 billion KRW respectively at the end of the third quarter, showing only moderate performance compared to 292.957 billion KRW and 244.108 billion KRW at the end of the third quarter last year.

As banks are turning their attention from the challenging U.S. and Chinese markets to Southeast Asia, IBK Industrial Bank's Indonesian branch has continued to post losses, recording a net loss of 15.1 billion KRW in the first quarter, followed by losses of 2.9 billion KRW and 4.4 billion KRW in the second and third quarters respectively.

Domestic banks have actively worked to expand their overseas branches in recent years. According to the Financial Supervisory Service, as of the end of last year, 12 out of 18 domestic banks operate a total of 168 overseas branches to conduct business abroad.

Despite these efforts, the lack of clear success in overseas expansion reflects the increased uncertainty caused by COVID-19, which has stalled new overseas entries, as well as growing concerns over the deteriorating asset quality of overseas assets in countries where banks have already established a presence.

"Difficulties in New Overseas Business Expansion for Banks...
Urgent Need for Specific and Sophisticated Localization Strategies"

Senior Investigator Cho Sung-ah of the Korea Deposit Insurance Corporation pointed out in a report titled "Strategies and Implications for Enhancing Profitability of Domestic Banks" released yesterday, "As COVID-19 spread worldwide, lockdowns and travel restrictions in various countries have completely halted due diligence on overseas projects. Consequently, banks' plans for new overseas business expansion at the beginning of this year have been disrupted."

"Even for branches already established overseas, there are concerns about deteriorating asset quality and shrinking operations due to worsening local economic conditions," she noted. She explained, "Overseas expansion inherently exposes banks to various risks such as foreign exchange risk and country risk, and suffers from severe information asymmetry. The outbreak of COVID-19 has further worsened economic conditions and increased uncertainties in each country, making it even more difficult to understand local specificities."

Senior Investigator Cho advised that while overseas expansion is inevitable for banks to secure continuous revenue sources beyond the limited domestic market, the entry barriers have become higher due to recent country lockdowns caused by the spread of COVID-19. Therefore, banks should pursue overseas expansion under more specific and sophisticated localization strategies. When considering new overseas entries, indiscriminate expansion should be avoided, and localization strategies should be strengthened based on thorough analysis of local customers. For regions where banks have already entered, it is even more urgent to establish systematic planning, support, and management systems to foster professional personnel and enhance the use of digital infrastructure.

This content was produced with the assistance of AI translation services.