Korean banks struggle to localize branches abroad

Korean banks have made little headway tailoring their overseas operations to local markets, in part because they have shifted their focus from bolstering branches abroad to stabilizing their businesses at home, according to the Financial Supervisory Service (FSS).

The FSS said yesterday that 83 overseas branches of seven banks - Shinhan, Kookmin, Woori, Hana, Korea Exchange Bank, Korea Development Bank and Industrial Bank of Korea - maintained an average score of three in an evaluation designed to assess how well they localize their operations abroad.

The evaluation, which uses a five-point scale, incorporates everything from the number of employees hired from the communities to the portion of savings accounts opened by locals. The FSS introduced the evaluation in October 2008 to help banks track and improve their localization efforts.

The organization said that locals accounted for just 63.2 percent of the banks’ customer base in overseas markets as of the end of June, a decline from 64.3 percent at the end of last year. Local employees accounted for 77.2 percent of the banks’ overseas workforce, which is down from 78.1 percent at the end of last year.

Additionally, the portion of local money in overseas funds fell to 33 percent from 34.3 percent in the same period.

The ratio of financing from locals also deteriorated, falling from 46.1 percent to 41.8 percent, meaning that overseas branches of domestic banks are depending on their headquarters in Korea for a large share of their financing needs. Also, the ratio of savings accounts by locals dropped from 61.3 percent to 59.2 percent.

The only category with a slight improvement was the portion of assets and revenue generated from overseas operations. But the banks still rank low in this area, according to the FSS.

An official from the FSS said the banks have struggled to localize their operations because they are putting more effort into helping insolvent branches in Korea.

They’re also looking to improve their overall financial health as they attempt to recover from the global financial crisis.

By Jung Jae-yoon [jyj222@joongang.co.kr]