Korea Gives with One Hand, Takes Back with the Other

By Brevett, Francine C. | American Banker, August 12, 1985 | Go to article overview

Korea Gives with One Hand, Takes Back with the Other


Brevett, Francine C., American Banker


SEOUL, South Korea--This prosperous Asian nation is slowly responding to the desire of foreign banks here for the same full-banking status that locally incorporated banks have.

But John Torp, vice president and manager of Bank of America's representative office in Seoul, finds that what the government gives with one hand, it takes with the other. It looks as though more equality may means lower profits.

Korean banking liberalization "is on track, but it has to be done with patience. Foreign banks have some privileges and some barriers," he observed. For instance, BofA belongs to the Seoul clearinghouse nad is an associate member of the Federation of Korean Banks.

Since last March, foreign banks have been allowed to use the Bank of Korea's discount window. In 1986, they will be able to use the rediscount window for commercial paper. And on July 1, the government permitted non-Korean banks to engage in trust business on the same terms as locally incorporated banks.

foreign banks depend on a narrow array of services. Their role in South Korea has been associated with funding economic development. Foreign bankers fear that the government may no longer need their services and show them the door if they are not allowed to engage in general banking activities.

Most Major U.S. Banks Represented

Forty-five foreign banks operate 52 branches in South Korea. Nearly all the major U.S. and Canadian banks are here, together with top institutions from Japan and other nations of the Pacific Rim. United Overseas Bank of Singapore and Rainier Bank of Seattle opened branches this year.

The government wants the public to think the foreign banks are doing well. In a table of 1984 profits of the foreign banks put out by the ministry of finance, New York's Citibank topped the list for the second consecutive year. Its combined after-tax net profit amounted to 5.97 billion won (about $6.8 million), which was up 21% from the 4.93 billion won in 1983.

The combined profits of the 10 banks at the top of the list amounted to 34.8 billion won, accounting for 58.3% of the foreign banks' total. The combined total assets of the top 10 banks accounted for 41.3% of the total with 2,001.7 billion won, according to the report.

However, Mr. Torp pointed out that the government figures do not include expenses such as salaries, living allowances or office overhead. The latter is an important category since foreign banks cannot own property -- they must rent their space for doing business. …

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