Composite images of Korea's leading commercial banks / Korea Times file

Major Korean banks earned less than 1 trillion won ($724.9 million) in net profit from overseas markets last year, data showed Tuesday. The industry explained that a prolonged period of high interest rates significantly increased the non-performing loans of local subsidiaries, causing the banks to incur losses.

The top five commercial banks in Korea — namely KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — earned about 894 billion won in net income last year from their overseas subsidiaries, according to combined data.

This represents only 6 percent of the total net income of 14 trillion won generated by these banks last year, indicating that the contribution of overseas operations to overall earnings is minimal despite their external growth.

Since COVID-19, these five banks have continuously increased the number of their employees, reaching 2,465 as of 2023. Their global networks have also expanded, with the number of subsidiaries, branches, and offices rising to 1,265 as of last year, a 50 percent increase compared to five years ago.

Among the banks, Shinhan Bank achieved the highest net income with 482 billion won, earning 42 percent of this net profit from Vietnam. It was followed by Woori Bank with 332 billion won and Hana Bank with 105 billion won.

In contrast, KB Kookmin and NH NongHyup Bank reported net losses of 23.4 billion won and 1.9 billion won, respectively.

Despite KB Kookmin Bank earning 149.9 billion won from four wholly-owned subsidiaries in China, Myanmar and Cambodia, it recorded a net loss of 174.3 billion won solely from KB Bank, formerly KB Bukopin Bank, in Indonesia. KB has been experiencing continuous losses in Indonesia since it acquired a majority of shares in KB Bank in 2020.

KB Kookmin Bank explained that its net income decreased due to "deteriorating asset quality and a sharp rise in market interest rates."

NH NongHyup Bank, a late mover in its global expansion, reported a net loss of 3.2 billion won from NongHyup Finance Cambodia and a net profit of 1.3 billion won from NongHyup Finance Myanmar.

Banking industry officials explained that loans issued during the low-interest period have turned into non-performing loans in the current high-interest environment, creating difficulties for overseas branches.

Some experts have pointed out the structural issues within the industry. Park Hae-sik, vice president of the Korea Institute of Finance, wrote in December 2023 that competition is fierce among domestic financial institutions as they tend to focus on the same regions, clients and business activities.

As of 2022, over 60 percent of the overseas branches of domestic financial companies are concentrated in Asia, where many Korean companies have a strong presence.

"Those operating in Asia serve domestic companies rather than local customers, mainly focusing on providing loans, underwriting, and managing bonds, and offering limited services such as stock brokerage, causing cutthroat competition," Park said.