Banks go­ing through tough times in China

Strict reg­u­la­tions, trade wars lead to wors­en­ing prof­its

The Korea Times - - FINANCE - By Park Jae-hyuk [email protected]­re­atimes.co.kr

Korean banks’ op­er­a­tions in China are fal­ter­ing due to a mix­ture of the fi­nan­cial au­thor­i­ties there tight­en­ing reg­u­la­tions and the af­ter­math of the pro­longed U.S.-China trade war that has slowed the per­for­mance of Chi­nese firms, data showed Mon­day.

Amid the de­te­ri­o­ra­tion of their prof­itabil­ity in the world’s most pop­u­lous coun­try, con­cerns have grown over the banks down­siz­ing their busi­nesses there.

Ac­cord­ing to data com­piled by Rep. Yu Eui-dong of the mi­nor op­po­si­tion Bare­un­mi­rae Party, Korea’s com­mer­cial and state-run banks were slapped with 30 puni­tive mea­sures in China from Jan­uary 2015 to June 2019.

The num­ber is far higher than the mea­sures they faced in other re­gions.

KEB Hana Bank, which had the largest num­ber of penal­ties im­posed at 10, was fined 1 mil­lion yuan ($140,000) in Shang­hai in April af­ter its Chi­nese sub­sidiary was found to have been lax in eval­u­at­ing bor­row­ers’ qual­i­fi­ca­tions for se­cured loans.

It for­feited an ad­di­tional 3.03 mil­lion yuan at that time, as money earned was re­garded as il­le­gal in­come.

The bank was also slapped with a 400,000 yuan fine in Yan­tai in May over an al­leged vi­o­la­tion of reg­u­la­tions re­gard­ing for­eign cur­rency pay­ments.

Back then, the au­thor­i­ties con­fis­cated 11,000 yuan — also re­garded as il­le­gal in­come.

The state-run In­dus­trial Bank of Korea (IBK), which had the sec­ond-largest num­ber of penal­ties with seven, paid a 1 mil­lion yuan fine to Tian­jin’s for­eign ex­change con­trol au­thor­i­ties in Fe­bru­ary 2018, due to its Chi­nese sub­sidiary’s poor fol­low-up man­age­ment af­ter a sub­sti­tute pay­ment in a for­eign cur­rency.

The Guangzhou branch of the Korea De­vel­op­ment Bank (KDB), an­other state-run bank, paid a 600,000 yuan fine in June af­ter the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion ruled that it had in­ad­e­quate tax in­voices and use of fund state­ments.

Kook­min Bank China’s Shang­hai branch was fined 40,000 yuan in April for er­ro­neous re­port­ing on the balance of in­ter­na­tional pay­ments.

In ad­di­tion to the strict reg­u­la­tions, Korean banks are also suf­fer­ing from a de­clin­ing de­mand for loans in China, which can be at­trib­uted to the ex­o­dus of Korean com­pa­nies and the poor per­for­mance of Chi­nese firms amid the ris­ing trade feud.

Hana, led by CEO Ji Sung-kyoo, who is the for­mer head of its Chi­nese sub­sidiary, posted a 14.4 bil­lion won ($12 mil­lion) net profit from op­er­a­tions in China in the first half of 2019, down 68 per­cent from last year.

Kook­min posted a 7.4 bil­lion won net profit, a 7.4 per­cent de­crease, and Woori saw a 17 per­cent de­cline to 6.1 bil­lion won.

Shin­han Bank’s Chi­nese sub­sidiary was the only one that had an in­crease in net prof­its at 17.2 bil­lion won, up 16 per­cent.

Against this back­drop, some Korean banks have be­gun re­struc­tur­ing their busi­nesses in China.

Hana, which had al­ready merged its two branches in Bei­jing in May, re­cently in­te­grated its two branches in Qing­dao.

The bank said the in­te­gra­tions were part of ef­forts to boost the ef­fi­ciency of its Chi­nese busi­ness.

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