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By Kim Bo-eun
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| gettyimagesbank |
The ongoing departure of foreign financial firms from Korea is drawing attention as to what is prompting their exodus and whether the government intends to address the issue.
The companies are pulling out as the country's growth rate slows amid a time of prolonged low interest rates
Deteriorating profits have led to a number of foreign banks ― including Goldman Sachs, Barclays, UBS and the Royal Bank of Scotland ― to pull out of the local market in recent years.
Foreign financial firms that remain in Seoul are seeking to reduce costs by scaling down branch numbers and cutting their workforces.
Citibank sold the building it was headquartered in last year and has closed down nearly 100 branches since 2017.
Deutsche Securities has drastically reduced its number of employees after the exit of its equity trading business here amid bleak business prospects ― it posted a net loss of 7.97 billion won last year.
Among such foreign businesses, Prudential Life Insurance Company of Korea made the most recent departure. The U.S.-based Prudential Financial group sold its Korean unit to KB Financial Group earlier this year.
This was because Prudential, which focused on whole life insurance, held a bulk of high-fixed yield policies that posed a significant burden, subjecting it to reverse margins due to the low interest environment here.
Talks of the possible exodus of the U.S.-based MetLife continue, as insurers face a saturated market and falling returns on investments.
A media report in July stated Cigna was in the process of selecting a lead manager for the sale of its unit here, Lina Korea.
The tough circumstances are also affecting non-life insurers ― French multinational insurance firm AXA is known to have put AXA Korea on the market.
AXA Korea was focused on the direct auto insurance business here, whose loss ratio exceeded 80 percent in the second quarter of this year. The company also posted a net loss of 33.65 billion won last year.
Overpowering regulations, unions
Exacerbating the circumstances for the foreign firms are the pro-labor policies of the Moon Jae-in administration, such as the 52-hour workweek. Even without such policies, Korea is known for its militant unions and rigid labor market.
Global indices evaluating financial hubs around the world have cited Korea's regulatory environment as a factor undermining its competitiveness.
Foreign firms also complain that barriers exist in learning about Korea's regulatory system, which has to do with the fact that the country is not an English-speaking environment.
In an ironic twist, the government is seeking to attract foreign entities to develop the competitiveness of major cities as financial hubs, without addressing the regulatory issues.
The financial authorities acknowledge the regulatory barriers and lack of tax incentives, but little has been done in the past decades despite various governments' initiatives to foster financial centers here.
They state that providing tax incentives only for foreign firms would be a measure that discriminates against local companies.
The Moon government is still seeking to attract foreign businesses, promoting the demand here for asset management services, based on the National Pension Service's assets under management. It also points to Korea's advanced IT infrastructure as a key strength.
"Foreign firms operate in markets around the world, and it only makes sense that they will pull out of locations where profits falter, and move to other places providing better business opportunities," an official in the financial sector said.
"On top of these tough circumstances is the power of local unions, which makes operations more difficult. This means that Korea is not attractive to foreign firms."
Currently, 163 foreign financial companies are operating in Korea, down from 168 in 2016, according to data from the Financial Supervisory Service.
