Foreign Financial Firms Prosper

Foreign financial institutions are becoming more and more influential in Korea. Their operations used to concentrate on pioneering niche markets. Now they are waging a frontal challenge to domestic financial institutions.

Korea's large commercial lenders are following interest rates set by Citibank and HSBC. Foreign securities firms lead trends in that industry. And in the insurance sector, foreign insurers are changing core insurance products into whole life insurance.

Foreign banks' deposit rates used to be lower than those of domestic lenders, and their lending rates were higher. But this year, when domestic lenders lowered deposit rates, Citibank on April 4 raised one-year time deposit rates from 6 percent to 6.3 percent. HSBC's deposit rates were already at 6.3 percent.

"We concluded that the interest rates had bottomed out so we decided to raise deposit rates in a bid to provide a differentiated service to our customers," said Kim Chan-seok from Citibank.

"Citibank and HSBC have introduced new financial products and marketing strategies. But they had never raised deposit rates before," said a domestic bank official. "Domestic lenders will have to confront the foreign lenders' business strategy by raising rates likewise."

It is the opposite with lending rates. In February, HSBC and Citibank pulled down mortgage rates for their customers to 7.9 percent, after discharging incidental expenses such as fees for pledging real property as collateral. Domestic lenders rushed to catch up with them.

Overall, foreign lenders were making inroads in domestic financial markets by offering high deposit rates and low lending rates, while domestic banks were simply killing time, hesitant in finding places to invest their money.

In the insurance sector, when Prudential Life Insurance Co. and ING Life Co. introduced whole life insurance 10 years ago, domestic insurers paid scant attention. They were concentrating on term life insurance products like educational endowment insurance. Now whole life insurance is regarded as a matter of life and death to domestic insurance firms.

"Large domestic insurance companies' market shares are still high," said a Korea Life Insurance Co. official. "But considering that high-income earners in professional areas such as doctors and lawyers prefer foreign insurance companies, we need to draw up countermeasures immediately."

With regard to securities, Kim Ji-young, of Samsung Securities Co., said that "The nation's stock markets rely heavily on foreign investors and they use foreign brokerage firms. As a result, these securities firms' influence on the stock markets is expanding more and more."

Goodmorning Securities Co., KGI, Regent Securities and Ileun Securities have been sold to foreign companies. Prudential Insurance Company of America made capital investment worth 110 billion won ($84.7 million) in CJ Investment Trust & Securities Co. in March. Hyundai Securities and Daewoo Securities are also gearing up to attract capital investment from the U.S. companies.

"Based on their accumulated know-how gained from global markets," said Kim Byoung-yun of the Korea Institute of Finance, "large foreign financial institutions have built marketing strategies with a more competitive edge. But domestic institutions tend to just follow other institutions' business strategies instead of developing their own."

by Kim Won-bae