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Korean banks in China fined even as operations struggle

Published: 15 Jun. 2023, 17:53

Chinese yuan stacked at a bank in Seoul [YONHAP]

Korean banks operating in China faced a wave of fines from Chinese financial authorities in 2022, sparking concerns about the potential impact on their already challenging circumstances.

Chinese financial authorities imposed a total of 17.43 million yuan ($2.43 million) in fines on the Chinese subsidiaries of Hana Bank, Woori Bank and Industrial Bank of Korea (IBK) last year, according to the recent electronic disclosure of the Financial Supervisory Service.

The largest penalty, amounting to 15.76 million yuan, was levied on Hana Bank's Chinese subsidiary by the Guangdong branch of the State Administration of Foreign Exchange (SAFE) in September 2022. The fine was imposed due to negligence in handling foreign currency payment guarantees. It also represents the highest penalty imposed on Hana Bank by an overseas financial authority since its integration with Korea Exchange Bank (KEB) in 2015.

In April 2022, Woori Bank's Chinese subsidiary was fined 200,000 yuan by the SAFE Guangdong branch for errors in the international balance of payments and statistical reports. Additionally, in June, the Beijing Banking and Insurance Regulatory Bureau fined Woori Bank's Chinese subsidiary 900,000 yuan for inadequate reviews of management rules for personal loans and negligence in handling foreign currency payment guarantees.

In December 2022, the SAFE Suzhou branch issued a fine notice of 570,000 yuan to IBK's Suzhou branch for omissions in external reporting and inadequate confirmation of remittance data.

The collective fines reflect an increase in penalties compared to the previous year. In 2021, local financial authorities imposed fines of 3.5 million yuan on China Hana Bank and 2.02 million yuan on China Woori Bank and its former head.

The challenges faced by Korean banks in China stem from the lingering impact of the Covid-19 pandemic and a sluggish real estate market, which have contributed to higher delinquency rates. Stricter control measures from Chinese financial authorities raise concerns about the banks' ability to manage these challenges effectively.

"Since China's financial market is not fully open, there are limits on the operations of foreign financial companies," noted an insider from the banking industry, adding, "China reacts sensitively to the outflow of domestic funds abroad, potentially explaining the imposition of significant fines even for minor infractions."

While Korean banks in China are holding out with funds from their Seoul headquarters, other financial entities such as insurance companies, card companies and capital firms are facing challenges as they strive to sustain their operations by targeting local residents and Korean businesses.

In 2019, the number of Korean financial institutions in China stood at 59, including 16 banks, surpassing the count in the United States at 54. By the end of 2021, Korean banks' assets in China reached $32.36 billion, accounting for 17.7 percent of their total overseas branch assets worldwide.

In contrast, among Chinese financial institutions operating in Korea, only the Bank of China's Seoul branch faced punitive action from Korean financial authorities last year. In June 2022, the Financial Supervisory Service issued a warning to an employee at the bank for failing to report a significant volume of cash transactions as required.

BY KIM KYUNG-HEE, SEO JI-EUN [[email protected]]