Banks in dilemma over China operations

By Lee Kyung-min

KB Kookmin, Shinhan, Hana and Woori are grappling with increasingly unfavorable business conditions in China, hobbled by recent downsizing efforts of Korean firms operating there, according to industry officials, Tuesday.

Chinese retailers' weak demand for loans amid the deepening economic downturn also made it more difficult for local banks to make money in the mainland, they said.

The lenders expected their business conditions to deteriorate further, exacerbated by the trade dispute between the U.S. and China, in addition to the prolonged post-pandemic economic slowdown amid growing default risks associated with bad debts of small and medium-sized firms in China.

Shinhan, KB Kookmin, Hana and Woori have seen the number of their corporate clients operating in China decline.

Hyundai Motor, for instance, is reducing the number of factories in China, with major manufacturing industry leaders taking similar steps or curtailing investments there.

Included are chip powerhouse Samsung Electronics and battery manufacturers including LG Energy Solution, SK On and Samsung SDI.

Their smaller partner firms supplying batteries and parts are under increasing pressure to outright withdraw or significantly reduce their reliance on the Chinese market.

“China's downturn prompted many Korean firms’ business to slow down, subsequently constraining demand for borrowing,” an official at one of the four lenders said on condition of anonymity.

Also at play are unmuted geopolitical risks related to China, he added.

“The tariff war under the Donald Trump administration is an uncertainty and unpredictability largely dreaded by Chinese companies. The potential increase in insolvency among borrowers is something of a red flag, as indicated by an uptick in delinquency ratios," the official said.

KB Kookmin Bank said its China business is not registering any indication of meaningful increase or decrease. “The year-on-year decrease in our loan assets is not expected to surge or plunge,” a KB Kookmin official said.

KB Kookmin reported 16.9 billion won ($13.5 million) in net income from Chinese businesses from January to September last year.

Woori Bank said the loan demand from Chinese firms are not as strong due to the recent slowdown in the country.

"Concerns about delinquencies and other risk issues are rising. China operations will focused primarily on high-quality Chineses corporate borrowers," a Woori official said.

The bank saw the highest such figure at 17.6 billion won, while Hana marked 10.3 billion won and Shinhan had 2.3 billion won.