South Korea’s‍ Top Banks See Overseas Earnings Drop Amid ‌Domestic‌ Focus

South Korea’s top four banks saw their overseas ‍earnings drop significantly in ⁣the first half as they focused more on domestic businesses such as more consumer lending for higher interest earnings, industry data showed on⁣ Friday.

The big ⁢four banks ‌- KB Kookmin, Shinhan, ‍Hana and Woori -⁢ posted a combined net profit of 337.9 billion won​ ($253 million) from their⁣ overseas ⁣operations in the first six months of the year, down 38.1%⁣ from the 545.6 billion earned in the year-earlier period.

The banks attributed their weak performance ‍to rising borrowing costs due to higher benchmark interest rates⁣ in⁢ the countries where they operate and⁣ higher provision for loan losses ‌due to rising delinquency rates amid an economic‌ slowdown.

Regulatory challenges from foreign financial authorities were also identified as an obstacle. Since September 2023, the four banks have faced 25 ​sanctions ⁢from foreign authorities.

Shinhan Bank was the only one of the ​four to see an increase in profits. Its first‌ half net profit rose 14% on the year to 296.2 ⁢billion won from 260 billion won.

Woori Bank’s overseas subsidiaries saw their net profit fall 38.2% to 94.4 billion won, while Hana Bank posted a 10% year-on-year decline to 70.1 billion‌ won.

KB Kookmin​ Bank turned to a net loss of 122.8 billion‌ from a profit earned of 55.1 billion a year earlier.

Foreign Earnings Underground

The four banks, which posted record overall earnings⁣ in the first half, said ‌their overseas earnings accounted for just 4.8% of it.

Of the 6.98 trillion won in combined net profit, only ⁣337.9 billion won came from their ‍overseas operations.

Their⁤ dependence on domestic operations has deepened ‌over the past decade.

Back in 2014, the overseas earnings of the 10 largest Korean banks accounted for 10.2% of their total profits.

Despite ⁣the‌ globalization campaign of Korean banks over the last two decades following the financial crisis in Asia, the number of their overseas branches has decreased.

According to the‌ Financial Supervisory Service, the number of overseas branches of Korean banks, including subsidiaries​ and offices, fell to 202 last year from 207 in ⁤2022. That is even short of the 257 ⁣branches run during the financial crisis Asian 1997.

Increase in Domestic Dependency

Meanwhile, Korean banks’ reliance on domestic operations⁤ has increased.

During the first⁣ half of this year, the interest income of domestic ⁢banks was 29.8 trillion won, accounting for 89.8% of‌ their total profit ⁤of 33.2 trillion​ won.

That percentage was higher than the⁤ 88.6% for the first half of last⁣ year.

Kim Yun-joo, head of⁤ the financial business at Boston Consulting Group Korea, said: “While ⁤Korean banks are ‍making easy money with higher interest⁢ earnings locally, their overseas expansion strategies have been stagnant for several years. They need to look at cases ‌where global banks have succeeded by leveraging competitive advantages in infrastructure investment or trade finance.”

Analysts said Korean banks also need to diversify their overseas expansion strategies from those focused on retail banking.

In corporate finance abroad, banks can create additional business opportunities not only by lending but also by connecting to services such as foreign exchange‌ transactions, ⁤cash management and consulting, they said.