Shinhan buys 40% stake in a bank in Indonesia

Shinhan Bank, the nation’s top commercial bank by assets and revenue, announced on Sunday it will make inroads into Indonesia.

The bank won approval from the Indonesian financial authority to acquire a 40 percent stake in Bank Metro Express (BME), a leading local bank in Jakarta.

It took more than two years to win approval since Shinhan signed an acquisition deal in 2012.

Shinhan CEO Cho Yong-byoung and chairman of the bank group Han Dong-woo made joint efforts to get the deal passed, the bank said.

“Acquisition of the stake in BME is a long-held project of the bank, and I will make it successful,” said Cho in his first press conference in March. He took office in February.

Cho visited Indonesia with Chairman Han earlier this month to push the deal.

“ BME, established in 1967, is a smaller bank that has 19 branches in the country but many loyal customers,” said an spokesman of Shinhan Bank.

“After establishing our branch in the Philippines, we will be able to complete a so-called Asian financial network which connects Vietnam, Cambodia, Indonesia, Philippines, Myanmar and India.”

Major commercial banks in Korea are going abroad to seek growth opportunities. They are eyeing the Indonesian market in particular.

In February, Woori Bank launched Bank Woori Saudara in Indonesia after acquiring the 30th largest local bank, Saudara.

Hana Bank, Korea’s third biggest, launched a joint Hana-KEB corporation in Indonesia last year.

The joint venture plans to attract low-income Indonesian consumers with microfinance programs this year. Hana is undergoing a merger process with Korea Exchange Bank in Seoul.

In the past, Korean banks went abroad to support large Korean businesses operating in other countries. Their main overseas customers were Korean businesses and expatriates.

“Korean banks still lack competitiveness in advanced countries and it is difficult to operate in China and Vietnam due to regulations,” said an official at the Financial Supervisory Service. “Indonesia is a relatively open market for foreign financial institutions.”

The three commercial banks are planning to open 10 to 25 overseas branches this year.

Nonghyup Bank, which has long focused on retail finance for Korean farmers, is also considering going abroad for the first time.

Korean banks have been trying to become exporters of financial services for years.

The real reason for their current ambitions is falling profitability in the local market amid the lowest-ever interest rates. It has become impossible to survive on margins from local customers deposits and loans, experts say.

“The benchmark interest rate cut has caused not only reduced rates for banks but also shortened maturities of deposits,” said Kim Young-wook, a researcher at Korea Institute of Finance.

The balance of long-term deposits fell from 432.5 trillion won in July to 421.7 trillion won as of January. The figures suggest that there are many consumers who are withdrawing deposits from commercial banks because of the low rates.

“It is likely that money from commercial banks will move to the stock market for higher yields from investment products designed by securities firms,” Kim said.

By comparison, the stock market is continuing to see rallies these days with the main Kospi surpassing the 2,100 mark on April 14 for the first time in three years and eight months. There are forecasts that the index could break the previous record high of 2,228.96 in May 2011.

The Korean financial authority is also encouraging commercial banks to expand overseas as local market conditions get tougher.

The Financial Services Commission announced in March that it will repeal the so-called three strike system this year, through which the authority restricts financial institutions from going outside or launching new businesses if they receive warnings three times.

The commission also plans to revise some of regulations regarding overseas expansion. One of them is to skip the commission’s deliberation on financial institutions’ overseas direct investment once they get past the commission’s approval for opening overseas branches.

“The commission will collect ideas from institutions until next month regarding the revision,” an official at the FSC said.

BY SHIM SAE-ROM, SONG SU-HYUN [song.suhyun@joongang.co.kr]