The Korean Banking Sector: “Are we there yet? ” February 1, 2005
Origins of the System • A key part of the Korean economic miracle of the 1960 s-90 s. • Reliable source of cheap credit to targeted industries/companies. • Government allocation of credit is the centerpiece of national economic policy. • All is hunky-dory until ~1993.
The Big Bang • Overinvestment and poor allocation of capital lead to sub-par investments – Chaebols enter various uncomplementary businesses – Political favor counts for more than high potential returns • Corporate cash flow turns very negative • Banks with thin margins can not sustain bad debt write-offs
The Shakeout • Collapse of major Daewoo, Hyundai companies is the final blow. • More than half the banking industry fails; the remainder is badly shaken. • Major consolidation of bad banks (ex: Woori Financial) and bad assets (KDB, KDIC) takes place. – Commercial banks go from 33 in 1997 to 19 in 2004. – Merchant banks go from 30 to 2 over the same period. • Over $150 bn in government funds injected.
The Double-dip • Having long shunned consumer lending for corporate loans which have proven lethal, Korean banks begin to throw credit at the consumer. – Average bankable Korean has 6+ credit cards by YE 2003 • The credit cycle turns abruptly but inevitably after 4 years of 100%+ growth. • Virtually every credit card company goes bankrupt, including all of the big 3: Kookmin CC, LG Card, and Samsung Card.
Where are we now? • Four major domestic bank groups: – Kookmin – Shinhan/Chohung – Woori FG – Hana • Three large foreign-owned players: – Kor. Am (Citibank) – KFB (Standard Chartered) – KEB (Lone Star)
Competitive Pressure Rising • Citi and Stan. Chart have largely clean entities to build on. • HSBC, DBS, JPM, and Barclay’s are also looking to buy in or start aggressive local operations. • Domestic banks’ product offerings & skills are still weak.
Financial Position • Domestic banks still distressed by global standards – Reported NPLs of 2. 37% are probably close to 6% on an int’l standard basis • ROA of 0. 74% (9 mos 04) is low vs global avg of 1. 31% • Deposit rates still very high by Asian/world standards – 91 d CD rate is 3. 5% in Korea, vs. 0. 25% in Sing. , 0. 01% in HK
Constrained Growth • Consumers remain over-geared • Strong exports will continue to create capital investment; however… • Business expansion is increasingly funded by internal cash flow or by borrowings in the international capital markets. – When banks fight the bond market, the banks lose • Low capital adequacy ahead of Basle 2 means that banks have limited capacity for expansion anyway.
What’s the way forward? • Banks must focus on “asset-light” activities: – Loan origination, not necessarily loan warehousing – Move excess deposits into investment products • Mutual funds • Insurance • Originate smarter products with more “valueadd” for customers – Fixed rate and offset mortgages – Revolving credit cards
The way forward (cont. ) • Higher capital efficiency will remove threat of further involuntary consolidation • The presence of foreign banks will be a constant worry for laggards – Market share losses – Threat of acquisition
Some Final Thoughts • Don’t count out the non-banks – ITCs and brokers could also capture consumer investment dollars if banks stumble – Consumer finance, leasing, and cards will all be back…. perhaps with foreign backing and management skill • Don’t automatically bet the foreign banks – Citi, HSBC, and Stan. Chart have all stumbled before in new markets – Domestic banks will copy innovations and poach welltrained staff more quickly than anyone thinks
Contacts Paul Sheehan paul@asianbanks. net +852 9192 -3105
Скачать презентацию The Korean Banking Sector Are we there yet
f0de402a54fc2e70d792641ea04082a8.ppt