Why Are Russia Hana Bank and Woori Bank's Earnings Soaring While Korean Companies Are Withdrawing?

Impact of International Community's Sanctions on Russia... Effect of High Interest Rates Too

As domestic companies operating in Russia are taking precautions such as halting production and withdrawing due to the Russia-Ukraine war, the performance of local branches of Korean banks is soaring, drawing attention to the reasons behind this trend.

Industry insiders interpret this as a result of funds flowing into Korean banks due to international financial sanctions against Russia, as well as increased operating profits driven by high benchmark interest rates.

According to the Financial Supervisory Service's electronic disclosure system on the 24th, the total assets and net income of Russian KEB Hana Bank and Russian Woori Bank, local branches of Hana Bank and Woori Bank respectively, expanded significantly last year.

Russian KEB Hana Bank's assets last year amounted to KRW 1,208.118 billion, and net income was KRW 13.862 billion. Assets increased by 66.5% compared to the same period last year (KRW 725.579 billion), and net income also rose by 149.63% from KRW 5.553 billion the previous year.

Russian Woori Bank also saw its assets and net income grow by 53.12% and 126.22%, respectively, compared to the previous year, reaching KRW 785.215 billion in assets and KRW 12.06 billion in net income.

Hana Bank and Woori Bank established their Russian local branches in 2014 and 2008, respectively. This was in anticipation of financial transaction demand as domestic companies in sectors such as automotive and electronics expanded their presence in Russia.

However, expectations took a sharp turn with the outbreak of the Russia-Ukraine war in February last year. Domestic companies like Hyundai Motor Group halted local production, and local branches of Korean banks faced operational difficulties due to international financial sanctions against Russia.

Ironically, the cause of the surge in both scale and profitability of Korean banks’ local branches despite these concerns is attributed to the international financial sanctions against Russia. As the US and other international communities imposed sanctions on Russian banks, funds from local Korean companies and others flowed into the Russian branches of these banks.

Another factor was Russia’s sharp increase in benchmark interest rates to counter the financial sanctions. Right after the war began in February last year, Russia raised its benchmark interest rate from 9.5% to 20%, a 10.5 percentage point increase, which boosted the operating profits of Korean banks’ local branches. Currently, Russia’s benchmark interest rate remains in the 7% range.

However, it is uncertain whether such strong performance will continue. The prolonged war and the cooling of Korea-Russia relations are factors. Recently, President Yoon Suk-yeol hinted at support for Ukraine in a foreign media interview, prompting immediate backlash from Russia, which claimed Korea was “partially involved in the war.”

A financial industry official said, “The position of banks could change depending on the prolongation of the Russia-Ukraine war and Korea-Russia relations,” adding, “Considering the time and cost involved in establishing and licensing local branches, as well as the purpose of supporting domestic companies and local Korean residents, banks are likely to remain until the very end.”

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