Bank federation tells members to look overseas

The chief of the Korea Federation of Banks, which represents major commercial banks in Korea, called on financial institutes to bolster overseas businesses in the face of a multitude of headwinds including low interest rates and tougher regulations on loans and the sale of investment products.

Kim Tae-young, chairman of the group, set a goal for members to expand the portion of profits derived from overseas markets to 20 percent within 10 years.

Presently, overseas business accounts for 7 percent of net profits for Korean banks.

“The banks should pursue localization through mergers and acquisitions and strengthen their digital platforms to further expand into markets beyond Korea,” Kim said.

Speaking of business conditions next year, Kim said that banks will likely face different challenges including low interest rates and regulatory issues.

Korea’s key interest rate stands at an all-time low at 1.25 percent, a factor that could lower the attraction of saving money.

Investment sentiment in Korea is not optimistic, following a huge loss incurred by derivative-linked funds earlier this year.

The prospect is in line with the projections issued by global ratings agency Moody’s last week for banks based in Asia, which said the outlook is “negative for the next 12 months.”

“Weaker economic and trade conditions will lead to moderate increases in problem loans for APAC banks,” says Eugene Tarzimanov, Moody’s vice president and senior credit officer, in a statement. “Meanwhile, the banks’ profitability will fall, because they are raising credit provisions while central banks are cutting interest rates to support economic growth.”

But not all prospects are dark - S&P, on the contrary, said that Korean banks could have an upper hand thanks to their expertise in digitalization.

“Korean banks are tech savvy and will continue to dominate the banking scene, even as the sector opens more widely to digital competition,” said a report titled “The Future Of Banking: Korean Banks Surf The Wave Of Tech Disruption.”

“We expect incumbent Korean banks to sustain their competitiveness as the sector goes more digital,” said S&P Global Ratings credit analyst Kim Dae-hyun.

Kim also said that digitalization might lead to a bright future for Korean banks if they act swiftly.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]