South Korean banks are turning their eyes to overseas markets in a bid to seek new profit sources amid a low interest rate trend, data showed Thursday.
Nonghyup Bank, the banking extension of the National Agricultural Cooperative Federation, said it will open a new overseas operation in India later this year, and is planning to open offices in Hong Kong, Cambodia and the United Arab Emirates in the near future. It already has offices in New York, Beijing and Hanoi.
The country’s fourth-largest commercial bank by assets and the largest farmers’ cooperative has focused on retail banking services in the country but started to look at the untouched overseas markets as a low rate trend has weakened its profitability.
South Korea’s policy rate is at a record low of 1.75 percent as the Bank of Korea slashed the rate three times in less than 10 months.
According to data compiled by the Financial Supervisory Service, South Korean banks’ net interest margin (NIM), a key gauge of profitability, dropped to a record low of 1.79 percent last year, although they posted a 60-percent jump in net profit on a drop in bad loan reserves.
Market insiders said that banks can log a NIM of up to 5 percent in fast-growing Southeast Asian countries, where interest rates are still high and labor costs are low.
Woori Bank, which has 185 overseas branches and offices in 18 countries, earned $120 million from outside Korea last year, accounting for 11 percent of its total profit.
The bank has a plan to expand the number of its overseas branches to 210 by the end of 2015 and to 300 in the long term.
Hana Financial Group Inc., which has Hana Bank and Korea Exchange Bank under its wing, plans to raise the percentage of its overseas income to 40 percent in 10 years. It has a combined 135 overseas branches in 24 countries, including 99 in Asia.
“The banking business in South Korea has already reached the saturation point. We have to seek our new business opportunities abroad,” said Sohn Tae-seung, a vice president of Woori Bank. “The Southeast Asian market is attracting Korean banks’ attention with higher profit margins.” (Yonhap)
