HSBC Set to End Quest to Build Retail Banking in Korea

HSBC Holdings Plc (HSBA) may end a 14-year quest to build retail banking operations in South Korea by closing or selling branches in Asia’s fourth-largest economy.

Europe’s biggest lender by market value is reviewing options for the local retail unit, Hyonjin Suh, a Seoul-based spokeswoman, said in an e-mail today. London-based HSBC is considering shuttering the operations, the Yonhap news agency reported, citing officials and regulators it didn’t identify.

HSBC is at a crossroads in Korea after KDB Financial Group Inc. abandoned plans to take over the business in July. Chief Executive Officer Stuart Gulliver, who is seeking to revive profitability and save as much as $3.5 billion in costs, this year decided to exit consumer banking in Japan. The lender said last week it’s also in talks to divest its $9 billion stake in Ping An Insurance (Group) Co., China’s second-largest insurer.

“It must be tough for HSBC to be competitive in retail banking in Korea with its small scale,” said Sung Byung Soo, a Seoul-based analyst at Tongyang Securities Inc. (003470) “With the government seeking to address a rising household debt burden, growth prospects in retail banking seem slim for local and foreign banks.”

South Koreans’ borrowing and credit purchases swelled to a record 937.5 trillion won ($864 billion) in the third quarter, central bank data show. The government announced measures such as requiring banks to boost fixed-rate loans and setting limits on credit-card lending last year to curb household debt.

Expansion Attempts

HSBC has failed in at least three attempts to build up its Korean retail banking business since it began the operations in 1998. In 1999, the U.K. lender walked away from talks with the Korean government to buy SeoulBank. In 2005, it lost a bid for Korea First Bank to Standard Chartered Plc. HSBC also abandoned a $6 billion bid to acquire Korea Exchange Bank (004940) in 2008 after authorities left the transaction in limbo for more than a year.

KDB, South Korea’s largest state-owned banking group, said earlier this year that talks on buying HSBC’s local retail business broke down because of conditions related to employment. KDB Chairman Kang Man Soo in April had agreed to buy the lender’s assets and debt at 11 South Korean branches.

HSBC, whose history in Korea dates back to 1897, had 25 trillion won of assets in the country as of Dec. 31, according to its website. The bank is selling assets or exiting businesses in markets including Japan and Thailand as it retrenches amid tighter capital rules and the sovereign debt crisis in Europe.

“Korea remains an important market for HSBC; we continue to invest in developing our Korean global banking and markets” units, Gareth Hewett, a Hong Kong-based spokesman for HSBC, said in an e-mailed statement. “Until we have taken a decision, we will continue to concentrate on delivering a high level of service to our customers.”

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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