Foreign banks eye small S. Korean retail lenders

  • Business
  • Tuesday, 18 Nov 2003

SEOUL: International banks, including Citigroup, HSBC Holdings and Standard Chartered (StanChart), are hunting for acquisitions in South Korea’s US$424bil consumer banking market, eyeing its growth potential and cheap valuations, analysts say. 

Facing stalled growth elsewhere in Asia and in Hong Kong in particular, the banks are seen looking to take advantage of the fall-out from a credit card debt blow-out, which has hammered valuations of South Korea’s consumer banks. 

HSBC and StanChart have a history of buying troubled consumer banking operations cheaply in emerging or high-growth markets before using their capital strength and turnaround expertise to fix the businesses.  

“On a regional basis, South Korea’s banking market has more growth potential than other Asian countries,” said Mok Youngchung, a banking analyst at ING. “For regional banks, they lack coverage in South Korea.” 

But the foreign banks will have to move fast, say analysts. 

Within a few years, they will face much tougher competition from the big four local banks – Kookmin Bank, Shinhan Financial, Woori Financial and Hana Bank – which have grown through mergers and acquisitions after the 1998/99 financial crisis. 

“In three years time, when recently merged banks are expected to generate synergy effects, foreign banks will face more difficulties increasing their market share,” said Jason Yu, a banking analyst at Samsung Securities. 

The big four local lenders control more than 70% of South Korea’s banking sector. In contrast, smaller lenders Koram Bank and Korea First Bank have been left out of the recent takeover activity, spurring speculation they are targets. 

Another smaller lender, Korea Exchange Bank, was sold to US-based investment fund Lone Star in August. 

Citigroup, HSBC and StanChart are at present the only foreign banks operating in South Korea’s consumer loan market, taking 5% of lending. 

They have been touted as the most likely buyers of Koram, seen worth US$2.3bil, and Korea First Bank, seen worth up to US$700mil. 

And HSBC, which withdrew from talks to acquire nationalised Seoulbank in 1999, said it was open to opportunities. – Reuters  

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