Banks going through tough times in China

Strict regulations, trade wars lead to worsening profits

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.