The Republic of Korea’s banks are focusing more on Vietnam as the market emerges as a major source of earnings for them amid their slowdown from China.

Korean commercial banks are showing a steady growth in Vietnam
(Photo: vietnambiz.vn)

RoK banks are seeing their earnings in China decrease due to the prolonged trade between China and the US and the slowdown in economic growth rates. However, they are showing higher profits in the Southeast Asian region, including Vietnam, thanks to the RoK government’s New Southern Policy, the Business Korea newspaper reported.

Korean commercial banks are showing a steady growth in Vietnam. Their net profits in Vietnam came to 131.80 million USD in 2018, showing a 116 percent rise (70.80 million USD) from 61 million USD in 2017, according to the data from the Financial Supervisory Service (FSS).

Woori Bank Vietnam also saw its net profits surge 130 percent year-on-year to 8.17 billion won (6.83 million USD) in the first half.

Meanwhile, the net profits of Chinese subsidiaries of the RoK’s top four commercial banks, including Shinhan, Kookmin, Woori and Hana Bank, came to 45.20 billion won (37.81 million USD) in the first half of this year, down 44 percent, or 36.30 billion won (30.36 million USD), from a year ago. The return on assets (ROA) also stood at 0.58 percent, falling short of 1 percent of Chinese banks as well as 0.75 percent of foreign banks in China.

According to Lee Chi-hoon, a researcher at the Korea Center for International Finance, the business environment in China has worsened as a whole amid the slowing Chinese economy. Furthermore, Korean conglomerates’ investment in China has shrunk after the Terminal High Altitude Area Defense (THAAD) issue. As a result, the Korean banks’ strategy of focusing on firms operating in China has reached its limits.

Accordingly, Hana Bank, which suffered the biggest drop in net profits among commercial banks, has closed down some branches. After the net profits of the Chinese subsidiary of Hana Bank plunged 68 percent on year to 14.40 billion won (12.04 million USD) in the first half, the bank has reduced the number of its branches in China from 30 to 27.

Some analysts pointed out that Korean commercial banks need to come up with a new strategy for China as their earnings gap between China and Vietnam has been narrowed to 22 million USD.