South Korean banks are seeing their earnings in China decrease due to the prolonged trade dispute between the United States and China and the slowdown in economic growth rates. However, they are showing higher profits in the Southeast Asian region, including Vietnam, thanks to the government’s New Southern Policy. In particular, some analysts point out that domestic commercial banks need to come up with a new strategy for China as their earnings gap between China and Vietnam has been narrowed to US$22 million (26.30 billion won).
The net profits of Chinese subsidiaries of South Korea’s top four commercial banks, including Shinhan, Kookmin, Woori and Hana Bank, came to 45.20 billion won (US$37.81 million) in the first half of this year, down 44 percent, or 36.30 billion won (US$30.36 million), 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.
Lee Chi-hoon, a researcher at the Korea Center for International Finance, said, “The business environment in China has worsened as a whole amid the slowing Chinese economy. Furthermore, Korean conglomerates’ investment in China has shrunken after the THAAD issue. As a result, the Korean banks’ strategy of focusing on South Korean 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 (US$12.04 million) in the first half, the bank has reduced the number of its branches in China from 30 to 27.
On the other hand, South Korean commercial banks are showing a steady growth in Vietnam, which is the representative of New Southern countries. The net profits of domestic banks in Vietnam came to US$131.80 million (157.80 billion won) in 2018, showing a whopping 116 percent (US$70.80 million or 84.70 billion won) from US$61 million in 2017, according to the data from the Financial Supervisory Service (FSS). Woori Bank Vietnam also saw its net profits surge 130 percent on-year to 8.17 billion won (US$6.83 million) in the first half.
The net profits of Chinese subsidiaries of domestic banks, excluding Hong Kong, stood at US$153.80 million (184.10 billion won) last year, narrowing the gap with Vietnam to US$22 million (26.30 billion won).