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South Korea Commercial Banking Report Q3 2008Published by: Business Monitor International Published: Sep. 17, 2008 - 40 Pages Table of Contents
AbstractOver the last year, the crisis in the inter-bank market, and the soaring prices of oil and other raw materials,tended to obscure several other important trends. In most of the developing world (i.e. the vast majority ofthe countries whose banking industries are surveyed by BMI), lending has been growing quickly. In manyemerging markets, inflationary pressures have been boosted by a rapid increase in credit. In a number ofemerging markets, macro-economic imbalances are evident.The figures on the tables above provide a snapshot of the banking sector in South Korea and the changesthat have taken place within it over the last year. To place the figures in context, it may be useful to bear inmind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Acrossthis sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The medianloan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil). On their own, the ratios of loans to deposits, assets, and GDP mean little: however, they can provideuseful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was63.9% in India. From Q308, we have included a new section that examines the risks associated with each country’sbanking sector in a new way. We have essentially sought to ask this question: to what extent will thebanking sector likely need to source funding from banks in the rest of the world over the course of 2008.Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues suchas the size and recent movement in the loan/deposit ratio, macro-economic developments and recentmovements in financial markets. Two general themes pervade the banking sectors of the Asia-Pacific region. The first is that the excesssavings within Greater China and Japan remain enormous and are likely to grow. One expression of thiswill be the continuing growth in bank deposits that is, in absolute terms, considerably greater than thegrowth in lending. The second is that central banks have, in much of the region, been moving to tightenmonetary policy. This has already had an impact on the behaviour of the banks. As in previous reports, we include a SWOT analysis for South Korea. Relative to all other countries,South Korea stands out because of the likely requirement on the part of the banks to borrow substantialamounts of money from their counterparts in the rest of the world. On the basis of the latest data that isavailable from the Financial Supervisory Service (FSS), we estimate that the banks will increase theirlending over the course of 2008 by about US$74 billion. We envisage that deposits from clients will riseby around US$22 billion. In other words, funding of approximately US$52 billion needs to come fromsomewhere else. As we explain in the discussion of South Korea’s economy, bank borrowings havealready emerged as a major component of the capital account at a time that foreign portfolio investorshave been net sellers of South Korean equities. South Korean banks suffered losses from over-exposure to the far-from-transparent Chaebol corporategroups in the late 1990s and from over-exposure to credit card debts in the early part of this decade. Thelatest figures suggest that they may be over-exposed to the household and small business sector. Not onlyis the loan/deposit ratio rising, but it is rising from a very high level: at around 135%, South Korea’s is theone of the highest loan/deposit ratios of any of the countries surveyed by BMI. The bottom line is that the banking sector appears highly vulnerable to any factor that could compromiseits access to funding from overseas. Unlike in 1997-98, though, the lack of economic imbalancesthroughout East and Southeast Asia are such that a crisis in South Korea would - on balance - be unlikelyto cause problems for neighbouring countries. Last quarter, the latest data that we had been able to find for South Korea pertained to the end ofSeptember 2007. This quarter, we have used data that pertains to the end of December 2007, or later. Inchanging the data, and incorporating BMI’s latest economic growth projections, South Korea’sCommercial Bank Business Environment Rating (CBBER) fell marginally - although it remains one ofthe highest in the Asia Pacific region. In essence, we are now looking for less growth in absolute termsthan we had been in Q208. South Korea stands out as the only country of the 32 for which we haveproduced reports this quarter whose CBBER has actually dropped over the last three months. Get Full Details About This Report >> |
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