South Korean banks take a breather from rapid expansion plans

Lenders will focus on domestic exposure to SMEs and households.

South Korean banks have been one of the most active in expanding their footholds into emerging markets in Asia over the past decade to offset low domestic returns.

The goal is to have overseas operations account for more than 20% of banking assets and earnings over the medium to long term.

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Vietnam, for instance, is one such country where Korean banks have been taking charge. Seoul-based Shinhan Bank is planning to open four more branches to add to its existing 30 branches whilst fellow Korean lender Woori Bank is also expanding its foodhold by opening six more branches within the year.

The number of branches of Korean banks operating abroad hit 431 by end-2017, up from 407 in 2016 and 382 in 2013.

In the near term, however, banks are poised to hold back their foreign expansion plans as their corporate focus shifts inward. “[W]e believe they will focus mainly on growing their domestic exposure to SMEs and households,” Fitch Ratings said in a report.

Additionally, the overseas pivot, however, does not come without risks given the less than accommodative macro environment. “This exposure is potentially higher risk than the banks' domestic business and could be tested as trade tensions, global monetary tightening and China's economic slowdown weigh on the operating environment in many of these markets,” added Fitch.