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Updated Tuesday, September 7, 2010 8:35 pm TWN, By Cynthia J. Kim

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Korean banks in China strive to go local way

Hana was granted with the license to operate debit card transactions only last year, which came almost three years after its incorporation there in 2007. The bank currently has licenses to take deposits and make loans but is still waiting for credit card, asset management and derivative product licenses.

“We need to develop a product mix of mutual funds, deposits and derivative products to operate like we do in Korea, but it isn't easy. China granted rights to issue credit cards to only one foreign bank based in Hong Kong this year, and that came after decades of China operation,” he said.

Banks that have opened up branches after September 2007 are required to hold a loan-deposit ratio of less than 75 percent within three years after formal incorporation.

But most Korean banks' Chinese subsidiaries have a loan-deposit ratio of over 100 percent, meaning they need more deposits and fewer loans to go by the rules.

Of Korean lenders, the ratio is highest at IBK's Chinese subsidiary with 133 percent, followed by Woori with 118 percent. It is 116 percent at Hana and 114 percent at Shinhan.

The Chinese government last year restricted loans to local government financing vehicles and property speculators and ordered commercial banks to move their off-balance-sheet asset of 2.3 trillion yuan onto their balance sheet.

Against this backdrop, the ICBC in late August posted a 38 percent gain in second-quarter profits on widened margins and increased demand for loans and fee-based services.

“Achieving economies of scale for foreign banks in China is extremely difficult, but competition among local players is heating up as they need to fit into the ratio within three years after incorporation,” Ma ju-ok, research fellow at Kiwoom Securities said.

Hana Bank has the largest yuan deposits with 7.5 billion yuan, followed by Woori Bank with 6.7 billion yuan and Shinhan Bank with 4.9 billion yuan.

Korean banks usually start their Chinese operations by setting up branches and marketing their depository products which often faces hurdles due to lack of brand power and affiliations connecting cash-out services.

The number of Korean banks' branches increased from 24 in 1999 to 57 last year.

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