Chairman Kim Jung-tai of Hana Financial Group and Chairman Cho Yong-byoung of Shinhan Financial Group hold a certificate of an MOU to cooperate in exploring overseas markets they signed at Lotte Hotel in downtown Seoul on May 25. They are flanked by Shinhan Bank President Jin Ok-dong and Hana Bank President Ji Sung-kyu. (Photo: Hana Financial Group)

Hana Financial Group and Shinhan Financial Group, the nation’s No. 3 and No.1 financial groups in terms of net profit, respectively, have agreed to collaborate in exploring global markets.

The move may be construed as the two financial groups’ strategies to refrain from excessive competition in overseas markets and jointly explore business opportunities.

Chairman Kim Jung-tai of Hana Financial Group and Chairman Cho Yong-byoung of Shinhan Financial Group signed an MOU to that effect at Lotte Hotel in Sogong-dong, Seoul, on May 25.

It is the first time that the nation’s two major financial groups have forged an alliance of this kind of collaboration so far.

The two financial groups have shared the view that banks, securities, and insurance subsidiaries from the respective companies separately entered overseas markets, causing a concentration in a few countries and cutthroat competition, thus leading to a decline in overall competitiveness.

Shinhan and Hana financial groups have 222 and 216 branches and representative offices in 20 and 24 countries, respectively.

Korean financial institutions have made tremendous efforts to tap Southeast Asian financial markets, but they have faced common challenges like local financial markets’ nationalistic tendencies, and aligning their respective strategies will result in greater synergetic effects, a Shinhan Financial Group official said.

Shinhan and Hana financial groups agreed to jointly enter new markets. If Shinhan and Hana financial groups joint forces, they might be able to take on large financial institutions from the United States, Europe and Japan, a Korean financial community official said.
Shinhan Financial Group’s global collaboration with Hana Financial Group began in early this year when Shinhan Bank Jin Ok-dong was on the same wavelength with Hana Bank President Ji Sung-kyu.

They shared the view that Korean commercial banks lag behind in terms of competition in advanced markets such as the United States, Europe and Japan and they also experience difficulties in the course of entering new markets such as Southeast Asian countries like local regulators’ strengthening of restrictions.

At that time, they agreed to cooperation in a basic stage – sharing information on the current situation of restrictions and networks.

Wider cooperation began to be discussed after an initial stage collaboration between Shinhan Bank and KEB Hana Bank. Chairman Kim of Hana Financial Group and Chairman Cho of Shinhan Financial Group came up with ways of promoting cooperation on a groupwide level.

Fifteen years have passed after Korean financial groups after Korean financial institutions were scrambled for tapping overseas markets.

The reason behind the exploration of overseas markets is that the Korean financial market has reached a stage of saturation in which Korean financial institutions have seen interest rates decline constantly — particularly net income margins, directly leading to profitability, drop to mid-1 percent levels.

Korean financial institutions’ efforts to explore overseas markets have begun to pay off. Shinhan Financial Group posted 932.4 billion won in operating profit in the first quarter of this year. Out of the total, the financial group earned 89 billion won from overseas markets.

Hana Financial Group saw overseas net profit account for 113.3 billion won out of 657 billion won in total net profit for the same quarter of the year. The figure represents the biggest ever overseas net profit.

But Korean financial institutions still have a long way to go compared to foreign juggernauts. Standard Charters of UK chalked up $15.271 billion (19 trillion won) in net profit last year.

The British multinational financial institution saw $7.76 billion (9.6 trillion) or 47 percent of the total net profit come from overseas markets.

Citigroup of the United States earned more than half of its net profit from regions other than North Americas. On the other hand, Korean financial institutions have seen overseas revenue portion stand at about 10 percent.