Financial Research Institute: "Bank-Centered Overseas Expansion Strategy Lacks Local Competitiveness"

Localization and Scaling Fail to Boost Recognition and Influence
Competition Over Same Region, Customers, and Tasks
Proposal for Acquiring Shares of Local Major Financial Firms

A suggestion has been made that the overseas expansion strategy of domestic financial companies should shift from independent bank-led entry to acquiring shares in local financial companies.

Haesik Park, Senior Research Fellow at the Korea Institute of Finance, pointed out in the report titled "Reorganization Direction of Domestic Financial Companies' Global Expansion Strategy," released on the 22nd, that "although domestic financial companies have actively expanded overseas since the global financial crisis, they are at a competitive disadvantage compared to local financial companies or other foreign financial companies, and it is not easy to expand their market dominance locally."

Park identified the main cause as the bank-centered overseas expansion strategy. He noted, "The overseas expansion of domestic financial companies has been mainly led by banks, while non-bank financial companies have shown sluggish progress." According to the report, as of March this year, out of 417 overseas branches of domestic financial companies, 204 branches, nearly half, were bank branches, while securities firms, asset management companies, and insurance companies accounted for 17.9%, 14.9%, and 17.2%, respectively. Park pointed out, "As a result, domestic financial companies have not localized or grown large enough to increase their recognition or influence in local financial markets."

Moreover, these companies are competing over the same customers, regions, and services. Currently, about 64.3% (268 branches) of domestic financial companies' overseas branches are concentrated in Asian regions such as China and Southeast Asia. They mainly provide limited services such as loans and securities brokerage to domestic companies operating locally rather than to local customers.

Park proposed acquiring shares in large local financial companies as a way to enhance the competitiveness of domestic financial companies locally. Specifically, domestic securities firms with expertise in acquisition financing would establish offshore funds to act as general partners (GP), while other non-bank financial companies and banks would jointly participate as limited partners (LP). He added, "By bringing in policy financial institutions such as the Korea Development Bank as LP members and then selling the shares held by the Korea Development Bank to other LP investors after a certain period, the management rights of domestic financial companies can be further strengthened."

He said, "Especially in Southeast Asia, where large banks often have non-bank financial companies as subsidiaries, domestic banks and non-bank financial companies interested in entering the Southeast Asian market will have strong incentives to participate in such funds. However, since there are regulations on foreign investors, such as limits on foreign ownership of financial companies in Southeast Asia, support from domestic financial authorities is necessary."

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