Overseas Banks Eyeing Korean Market

Already, 37 foreign banks are in the Korean market.

Although some foreign banks including Citibank, SC First Bank, and HSBC have branches nationwide and offer retail banking services, most foreign banks sell derivatives or help companies from their own countries with trade finance.

Merrill Lynch, however, has a different strategy. When Merrill Lynch gains permission for banking service, the company is expected to provide payment service for a variety of bills, credit cards, and insurance through CMA.

Merrill Lynch has history of a great success in 1977 when it first developed CMA for the US market. CMA refers to a financial instrument that enables payment and deposit and withdrawal at any time while generating profits in accordance with bond investment performance instead of applying a fixed rate. Generally, its earning rate is higher than banks’ interest rates.

Global financial companies are coming to Korea-

Recently, Goldman Sachs gained banking permission, following Morgan Stanley, which gained one in July 2005.

Moreover, ING Group applied for preliminary permission for establishing an asset management company last month. UBS is also reported to seek an asset management company. Three to four foreign financial groups including JP Morgan are pondering upon building an asset management company in Korea. Genworth Financial, a large U.S. financial company, will soon enter the Korean mortgage insurance market.

What they are seeing in the Korean market is its great potential.

Financial instruments account for only about 10% of the total asset of Koreans and most them are in the form of savings, which indicates great potential for further expansion of the investment market.

The Capital Market Integration Act, which will break the barriers between the works of financial companies, will be executed as soon as 2008, and a service market opening through the conclusion of a Korea-U.S. FTA would force both domestic and foreign financial companies to engage in fierce competition with diverse instruments.

“It seems that foreign companies are trying to preoccupy the Korean market,” said Han Jung-tae, a researcher of Mirae Asset Securities.

A researcher in Samsung Research Institute of Finance also said that we cannot rule out the possibility that Korean financial companies might be acquired by large US financial companies when the Korea-U.S. FTA is concluded.

Im-Sook Ha artemes@donga.com