Banks Expanding Non Banking Services

Banks are expected to raise their non-banking portfolios and pursue more aggressive overseas expansion this year in a desperate bid to find a breakthrough in worsening bottom lines here, analysts say.

They said banks will speed up efforts to find new growth engines in the areas of securities and insurance.

Their views reflect expectations in the market that the Lee Myung-bak government will phase out barriers between financial markets to help firms grow into global investment banks. More South Korean banks may pursue mergers with overseas lenders to secure stronger positions to compete with global rivals, they said.

``Banks pursued aggressive asset growth until last year, but their interest income did not grow much,'' said Han Jeong-tae of Hana Daetoo Securities, a brokerage arm of the country's fourth largest financial service provider, Hana Financial Group. ``They are expected to refrain from expanding assets to prevent further falls in their net interest margins, while becoming more active in increasing their presence in emerging markets.''

The government's plan to ease rules restricting conglomerates and pension funds from investing in banks may serve as a catalyst for revaluation of bank stocks, but their share prices will move in a limited range, largely due to the negative outlook for their earnings, according to Han.

Banks say investors' sentiment toward bank stocks may improve beginning in the second half of this year if external risks caused by the U.S. subprime mortgage problems abate.

``This year, however, it will be difficult for banks to see a rise in net profits,'' Han said.

South Korean banks' overseas portfolios are still much smaller than global banks. Kookmin Bank, the country's largest lender, has only two percent of its assets in global markets, while global assets amount to 15.2 percent at Mizuho Financial Group; 41.9 percent at Citigroup; 69.4 percent at Deutsche Bank; and 88.2 percent at UBS.

Korean banks reaped only 3.2 percent of their earnings from overseas markets as of the end of 2006, which is much lower than other banks. They need to find a breakthrough by focusing on mergers with overseas banks and expanding their business networks, according to analysts.

Banks and securities firms are making all-out efforts to secure investment banking experts to develop the area into core growth engines in line with the government's steps to spur overseas investment by domestic firms.

They have conducted reshuffles to reinforce investment banking bureaus and hired more staff to deal with securities and real estate investments, project financing and derivatives trading.

``The growth pace of investment banking business here has become faster, as banks raise their stakes on investments into stocks, bonds and mergers and acquisition deals,'' said Kim Woo-jin, a researcher at the Korea Institute of Finance. ``Financial firms are competing to attract more experts to handle their global businesses, but most of them lack the staff.''

Kookmin, Shinhan and other major banks saw their earnings from investment banking grow more than 20 percent in 2007. The outlook for the business is positive considering their plans to explore more overseas markets, while their loan businesses on the local market are reeling because of the government's strict regulations, analysts say.

http://www.koreatimes.co.kr/www/news/nation/2008/03/123_21644.html

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Banks Expanding Non Banking Services