Rich locals are ripe targets

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Rich locals are ripe targets

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Foreign financial companies are approaching local banks in hopes of entering the private banking market here as business in the West dries up due to the deepening global recession.

According to Woori Bank, high-ranking officials from Rothschild’s private banking business based in London made a visit last month to propose a private banking collaboration.

The Korean bank did not give further details or say whether it is considering the offer.

KB Kookmin Bank said it was also currently in talks with a European financial group about a deal on private banking.

The bank also refused to give more details.

Foreign banking groups are eying the local private banking market because it continues to grow.

A Bank of Korea report showed that although the return on assets (ROA) by Korean banks has halved compared to a few years ago, it was considerably higher than the ROA of banks in major economies.

Korean banks’ average ROA as of last June was 0.68 percent. This is a drop from 1.08 percent in 2007 before the global meltdown in 2008.

Japanese banks’ ROA was 0.43 percent in the first half of this year. This was a drop from 0.59 percent in 2008. British banks had a far lower ROA of 0.16 percent, compared to 0.71 percent in 2007.

The U.S. had a slightly lower ROA than Korean banks at 0.65 percent, also a drop from 0.92 percent in 2007.

As a result, foreign banks, particularly those based in Europe, are taking an interest in the local private banking market.

The number of private banking customers continues to grow in Korea. In 1997, it was estimated to be roughly 40,000. Today, it is estimated to be more than 150,000.

Furthermore, banks deposits with more than 1 billion won ($917,000) have doubled since 2007. While the total amount of single bank accounts with more than 1 billion won was 129 trillion won in 2007, it stood at 290 trillion won at the end of the first half of this year.

The number of accounts with such large deposits has nearly doubled from 22 in 2007 to 40 last year.

Market analysts say that when you add other financial holdings and properties, the private banking market is estimated to be worth more than 400 trillion won.

Another reason foreign financial companies are taking interest is that private banking has a short history in Korea and therefore a lot of potential.

Citibank was the first to offer private banking services in 1989, and Hana Bank was the first Korean bank to start the service in 1995. It was only after 2000 that local banks jumped into the market. Recently, other financial investment companies, such as brokerage firms and insurance companies, hopped on the bandwagon.

Korean banks have been stepping up their services for the super wealthy. Hana opened up a private banking center in the heart of the wealthy neighborhood of Dogok-dong, southern Seoul, late last month.

The private banking centers of the four major banks - KB Kookmin, Woori, Shinhan and Hana - number roughly 120 nationwide.

Additionally, most of the wealth management is concentrated in real estate. Prior to the 2008 global financial crisis, investing in real estate was indeed lucrative. In 2008, 76.8 percent of private banking clients’ portfolios was concentrated on nonfinancial assets, including real estate. This was exceptionally high when compared to 27.8 percent of American clients and 52.9 percent of British private banking clients.

However, as the real estate market froze over, private bankers have been pressured to find new profit sources for their customers.

“The Rothschilds enjoyed a collaboration with the Japanese brokerage firm Nikko since the mid-2000s,” said an analyst who requested anonymity. “For them to be interested in the Korean market is natural, especially when the financial markets in Europe are currently in a mess.”

Hana Bank and Korea Exchange Bank, on the other hand, are looking to expand their private banking services to overseas markets. Hana, according to industry sources, is targeting Chinese clients not only in mainland China but also Hong Kong, while KEB is looking into the market in North America.

By Lee Ho-jeong [ojlee82@joongang.co.kr]

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