Korean banks’ overseas branches face more FSS scrutiny

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Korean banks’ overseas branches face more FSS scrutiny

The Financial Supervisory Service (FSS) has changed its assessment criteria to improve the efficiency of the Korean banking sector overseas and prompt banks to explore new global markets.

Currently, eight Korean banks have businesses in China, followed by seven banks in the United States and five in Vietnam, said the FSS.

Under a new revised assessment announced on Thursday, local banks will get their overseas business rating downgraded if they open additional branches in China and the U.S., where Korean banks are already established. They will get their grading increased if they open a branch in a country where Korean banks are not in place.

The FSS launched the localization performance assessment in 2008. It considers factors such as the number of local employees and local customers, as well as the size of managed capital, debt and deposits.

The FSS said it will give less weight to the sheer number of overseas branches under the new assessment, but it will heavily evaluate each bank’s mid to long-term overseas expansion plans and the management status of each branch.

The new criteria also emphasized the numbers of local talent being hired as executives or heads of branches and local headquarters, while less consideration will be placed on the number of total local employees. An average of 90.7 percent of Korean banks overseas employ local nationals.

The assessment will now exclude the debt ratio of each branch, as the size of loans may fluctuate easily with policy rate changes in each country.

The FSS said that for the first half of this year, Korean banks had a total of 163 overseas branches in 37 countries, compared to 162 last year. ?

Korean banks saw an average 4.8 percent, worth $89.4 billion, of their total assets come from overseas branches as of June.

Their assets owned via overseas branches rose by 3 percent compared to last year, but the growth rate has slowed compared to 11.6 percent year-on-year rise in 2014. The size of assets owned at overseas branches expanded mostly in the U.S., United Kingdom, Hong Kong, Singapore, Vietnam and China, but declined in Japan due to some Korean commercial banks’ embezzlement cases in the past few years.

Korean banks saw their largest revenue in their Vietnam and Japanese branches, while they saw losses in China, Singapore and U.K. branches.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]
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