Korean Financial Firms Face Limits in Overseas Expansion: “Must Move Beyond Interest-Centered, Southeast Asia Focus”

Japan’s Top Three Megabanks Earn Over Half Their Profits Overseas
Korean Financial Firms Need to Rebalance Overseas Businesses for Capital Efficiency

There are calls for domestic financial companies to completely re-examine their overseas expansion strategies, which have been positioned as new growth engines. Analysts point out that the current interest income-centered business structure, heavily concentrated in Southeast Asia, has reached its limits.

On April 21, Samjong KPMG published a report titled “Rebalancing the Two-Track Strategy in the Era of Overseas Expansion 2.0 for Financial Companies,” which included this analysis. The report diagnosed that it is necessary to transition to “Overseas Expansion 2.0,” which involves a complete redesign of the goals, target markets, business models, channels, and overall business management of domestic financial companies’ existing overseas strategies.

The report suggested the following key directions for the new strategy: ▲ shifting toward qualitative performance-oriented goals ▲ diversifying target countries and regions to transition target markets ▲ transforming business models to focus on expanding non-interest income ▲ shifting channels toward digital and partnership-based models ▲ transitioning to decentralized, region-based governance systems.

Southeast Asia and Interest-Centric Focus... K-Finance Export Hits a Limit

Since the mid-2000s, domestic financial companies have begun expanding overseas, starting with banks and followed by securities firms, asset management companies, and others. The number of overseas branches increased from about 330 in 33 countries in 2010 to about 470 in 46 countries as of September last year. During this period, the assets and net profit of overseas branches have steadily increased. In some countries such as Vietnam, local retail bases were strengthened and lending-focused operations expanded through mergers and acquisitions (M&A).

However, the report analyzed that these strategies have hit structural limitations. Overseas expansion has still been centered on banks, and business models have remained largely focused on interest income from lending. As of September last year, banking accounted for the highest proportion of all overseas branches at 43.8%. In 2024, interest income accounted for as much as 85% of the profits of overseas bank branches.

There are also signs of limitations in profitability. As of 2024, the net profit from overseas branches accounted for only 10.7% for banks and 7.3% for securities firms out of the total. This contrasts with the three major megabanks in Japan, which generate more than half of their total profits from overseas. In addition, the return on assets (ROA) of domestic banks' overseas branches fell from 0.86% in 2018 to 0.74% in 2024.

The report also highlights significant regional concentration. As of September last year, 66.1% of domestic financial companies’ overseas branches were located in Asia. In particular, branches were concentrated in specific countries such as Vietnam (12%), China (9%), Indonesia (7%), and India, Myanmar, and Hong Kong (each 6%). The report noted, “While expansion into markets with high potential for growth and close geographic and cultural proximity is meaningful, it also entails the limitations of regional concentration and intensifying competition among domestic companies within those regions.”

Recent profit data by country shows that while the proportion of profits from some markets, such as the United States, is expanding, the share of net income from China and the United Kingdom is declining. In some regions, such as Indonesia (banking) and Thailand and Myanmar (securities), losses continue to persist.

Two-Track Rebalancing Needed...“Learn from the Japanese Example”

The report proposed a “two-track rebalancing strategy” that thoroughly overhauls the overseas expansion strategies of financial companies from the perspectives of capital efficiency and risk management.

First, it emphasized reorganizing overseas businesses with a focus on capital efficiency. The report explained that profitability and risk should be systematically re-evaluated by overseas subsidiaries, branches, and business units, and that inefficient assets should be divested or strategically reallocated based on this assessment.

The second track is an expansion strategy to secure new growth pathways. The key is to rapidly and efficiently enter new markets by combining external growth strategies such as M&A and strategic alliances with expansion models based on digital technology in order to discover next-generation global hubs and new businesses.

To effectively implement these strategies, the report emphasized the need to: ▲ diagnose and restructure country portfolios with a focus on capital efficiency ▲ rebalance at the business and branch unit level ▲ strengthen external growth (M&A and partnerships) and localization strategies ▲ expand digital and platform-based market penetration ▲ and advance operating models and talent management systems in parallel.

The report also presented best practices from overseas financial companies. Mitsubishi UFJ Financial Group (MUFG) in Japan strengthened its profit base by diversifying its global portfolio and expanding its investment banking operations. Tokio Marine grew into a global insurance company through aggressive overseas M&A. Monex entered the global market with a digital-based securities business. Nubank, a digital financial company based in Latin America, is cited as a representative case of rapidly expanding its market presence through platform competitiveness without physical branches.

Jaeseok Lee, Managing Director in charge of Financial Strategy at Samjong KPMG Consulting, said, “Financial companies must structurally assess their existing businesses from a capital efficiency strategy perspective and shift to a profit structure centered on non-interest income and digital expansion. The United States should focus on investment and asset management, Southeast Asia on platforms, retail, and payments, India on wealth management (WM) and brokerage, and Hong Kong and Singapore should redefine their functions as deal sourcing hubs.”

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