[Banking, to Eastern Europe]②Still Focused on Southeast Asia...Attention on New Markets

The primary reason banks are turning their attention to Eastern Europe, including Poland, is attributed to the expansion of defense industry exports and economic exchanges due to the Russia-Ukraine war. However, the overseas performance of domestic banks, which is heavily concentrated in Southeast Asia, is also cited as one of the background factors.

According to the financial sector on the 25th, the proportion of net income from overseas subsidiaries of major commercial banks in the Southeast Asia region accounts for about 50-60%. In the case of Shinhan Bank, the share of three Southeast Asian subsidiaries (Vietnam, Cambodia, Indonesia) among all overseas subsidiaries last year was 51.7%. This is an increase compared to 49.3% in 2019, five years ago.

Woori Bank also recorded a controlling shareholder-based net income ratio of 64.6% from five Southeast Asian countries (Indonesia, Myanmar, the Philippines, Vietnam, Cambodia) subsidiaries during the same period. Although this is a 3.0 percentage point decrease from 67.6% in 2019, the structure of earning two-thirds of total overseas net income from Southeast Asia remains unchanged.

Hana Bank’s Indonesian subsidiary, PT Bank KEB Hana, posted a net income of approximately 38.1 billion KRW last year, accounting for more than 34% of the total overseas subsidiary performance. Of course, Hana Bank, which merged with Korea Exchange Bank, has been relatively active in expanding into North and South America compared to other banks, maintaining its growth trend. It also achieved notable results in Russia. A Hana Bank official explained, "Recently, as global banks operating in Russia have suspended operations and Hana Bank’s Russian subsidiary has strengthened its business capabilities, foreign exchange transactions have concentrated, significantly increasing foreign exchange fee income."

The concentration of commercial banks’ overseas expansion in Southeast Asia is also evident in bank branches and assets. According to the Financial Supervisory Service’s announcement last year, as of the end of 2022, domestic banks had a total of 207 overseas branches in 40 countries, with Southeast Asia (8 countries) accounting for the largest share at 33.8%. China, Hong Kong, and Japan (17.9%), other parts of Asia (17.4%), the Americas (14.0%), Europe (12.6%), and other regions (4.3%) did not reach this level.

The asset scale shows a similar trend. Looking at the assets of domestic banks’ overseas branches, the Southeast Asia region ranked first with $53.97 billion (26.6%). This was followed by the United States ($32.62 billion), China ($31.36 billion), Hong Kong ($25.86 billion), and the United Kingdom ($20.17 billion). Despite differences in economic scale, asset concentration toward the Southeast Asia region is occurring.

The reason domestic banks have focused on the Southeast Asian market so far is attributed to the small scale of the financial industry in the region and relatively less competition. A financial sector official said, "In regions like the Americas and Europe, it is not easy to secure a position because of the overwhelming influence of well-developed global banks in many respects," adding, "Southeast Asia is geographically close and has significantly underdeveloped financial infrastructure, making it particularly convenient for domestic banks to enter."

However, some interpret that concentration in specific regions is not entirely positive. Haesik Park, a senior research fellow at the Korea Institute of Finance, pointed out in a report released last year, “Domestic financial companies operating overseas tend to focus on the same region, the same customers, and the same business lines,” adding, “This is why there are talks of cutthroat competition among domestic financial companies operating locally.”

The financial authorities, which are actively promoting the overseas expansion of domestic financial companies, have been encouraging a shift not only to Southeast Asia but also to Central Asia and Eastern Europe since last year. Last year, Kim So-young, Vice Chairman of the Financial Services Commission, visited Uzbekistan and Kyrgyzstan to promote K-finance sales. At that time, BNK Capital, a subsidiary of BNK Financial Group, established an overseas subsidiary in Bishkek, the capital of Kyrgyzstan.

Additionally, Kim Joo-hyun, Chairman of the Financial Services Commission, has been visiting Poland in Eastern Europe since the 24th along with the five major commercial banks and the Industrial Bank of Korea to discuss the local expansion of Korean financial companies. This is due to the increased geopolitical importance of Eastern Europe amid the Russia-Ukraine war and the rising status of countries like Hungary and Poland as production bases and logistics hubs within Europe.