KB, Hana’s China units warned of liquidity risks

11-Jul-2019 Intellasia | KoreaTimes | 6:02 AM Print This Post

Financial authorities have issued a warning to KB Kookmin and KEB Hana Bank’s corporate bodies in China for their poor financial structure.

The Financial Supervisory Service (FSS) said Tuesday the agency issued an “attention-level” warning to both banks’ corporate bodies in China. A financial firm is subject to submit an improvement plan with the agency within three months if it receives an attention-level warning.

The FSS could impose an additional measure if the plan isn’t good enough.

The agency said the two firms’ local corporate bodies in China share similar financial problems due to their depending too heavily on Korean firms’ deposits and credit offered by their parent units in Korea.

“Such a financial structure could be extremely vulnerable to external liquidity risks. It needs to be fixed,” an FSS official said.

According to the FSS, the combined amount of credit the two Chinese units have received from their headquarters reached nearly 1.4 trillion won ($1.19 billion) at the end of 2018.

This indicates the two units heavily depend on their parent companies’ financial aid due to a worsening business environment there following the prolonged US-China trade dispute, and the FSS officials said they are crossing the red line.

KB Kookmin Bank said it has provided a total of 875.7 billion won worth of support for its corporate body in China at the end of 2018, up 356.5 billion won, or 68.7 percent, from the previous year.

KEB Hana Bank’s local unit in China managed to reduce the amount of support from its parent company to 507.8 billion won from 548.8 billion won worth during the same period, but failed to drag the figure below the 500 billion won level.

Their poor financial structures have already been evident since some financial indices started failing to meet the Chinese financial regulator’s requirements, the FSS official added.

“They should strengthen their risk management of cash flow,” said the official. “In the long term, they should also come up with a plan to diversify their financing sources while featuring more solid debt maturity structure.”

Observers said commercial banks need to be more vigilant especially in the Chinese market since the country’s economy is losing steam.

China’s economic growth rate stood at 6.6 percent in 2018, the lowest level since 1990 when it marked a 3.9 percent growth rate in the year following the Tiananmen Square protests.

The Asian Development Bank said China’s growth is likely to hover below 6.3 percent this year due to the renewed trade tension between the US and China.



Category: Korea

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