South Korea's Hana looks to China for growth

The commercial banking group says it will invest $259 million in a new China subsidiary.
Hana Financial Group of South Korea will set up a 100% subsidiary in China with an initial capitalisation of $259 million.

Hana will base the new unit in Beijing. It will be submitting applications to ChinaÆs regulators later this month and, subject to receiving approvals, intends to start operating in China in 2008 and is targeting a network of 12 branches across the country by 2014. Hana will continue with plans underway to try to buy provincial banks in China.

Hana Financial Group is the third largest commercial banking group in South Korea. In 2004, it acquired Korea First BankÆs 50% stake in Qingdao International Bank, a joint venture between ICBC and Korea First Bank. It then made a capital infusion into Qingdao and took its ownership to 72%. However, Qingdao operates in a niche market providing banking services to South Korean companies operating in China and is probably not satisfying HanaÆs appetite for geographical diversification and growth.

In 2006, Hana was in the fray for LG Cards which went to rival Shinhan Financial as well as for KEB, which finally was not sold. Hana also yesterday declared financial results for 2006 with net profit showing a healthy 14.5% year-on-year increase.

KoreaÆs banks are having to increasingly look outside their home market to fuel future ambitions. Kookmin Bank is looking closely at Cambodia, Indonesia and Vietnam and the Kookmin CEO said recently that the bankÆs long-term growth potential lay in offshore markets. Shinhan Bank, part of Shinhan Financial Group, is also looking at markets in Asia and Europe for future growth.

Sunil Garg, head of research at JPMorgan, comments: "I see two aspects to Hana's announcement. First of all Korean banks, for the first time since the financial crisis, are over-capitalised. There is some growth at home but generally South Korea is now a mature market and growth rates will no longer be dramatic. Domestically M&A is becoming difficult and the few available targets are hotly contested. From a growth perspective, Hana's move makes imminent sense. Secondly, from a long-term planning perspective for banks - including Hana - taking steps to foray into new, high-growth markets like China is the logical next step. As a natural corollary to this, all banks which globalise will not be successful. But for Hana, at this stage, putting $259 million of capital to work in China makes sense."
¬ Haymarket Media Limited. All rights reserved.
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