Korean banks that moved into Indonesia, cited as Southeast Asia's largest economy, are struggling to shake off sluggish results. They posted profits at all major hubs, including the United States, Japan and the United Kingdom, but recorded a loss only in Indonesia. Despite acquiring local banks and expanding branch networks, observers say profitability and soundness are falling short of expectations as bad loans, financial mishaps and regulatory burdens pile up.
According to the Financial Supervisory Service on the 4th, Indonesian operations posted a $53 million loss last year when looking at net income by country for overseas branches of Korean banks. It was the only loss among 14 countries tallied by the Financial Supervisory Service. Major markets all posted profits, including the United States ($217 million), Hong Kong ($243 million), Japan ($164 million) and the United Kingdom ($158 million). Across six Southeast Asian countries in total, they recorded a $588 million profit, but Indonesia lagged far behind.
Soundness indicators also worsened. Nonperforming loans (NPLs) at nine overseas branches of Korean banks in Indonesia totaled $829.4 million. NPLs are bad debts that have been in arrears for three months or more and are difficult to recover. The NPL ratio to total loans was 7.81%, about six times the overseas branch average of 1.36%. The burden of bad debts is weighing down profitability.
By bank, KB Kookmin Bank and Woori Bank stand out for weak performance. KB Kookmin Bank acquired Bukopin Bank in 2020, changed its name to "KB Bank," and put forward a strategy to grow it into a key Southeast Asian hub, but losses continue as bad loans have not been properly resolved. The KB Indonesia subsidiary's net loss widened from 173.3 billion won in 2023 to 241 billion won in 2024, and it also posted a 68.3 billion won loss last year. It recorded a 1.5 billion won net loss in the first quarter of this year as well.
Woori Bank is in a similar situation. Woori Sodara Bank, launched after the acquisition of Bank Saudara in 2015, was once cited as a successful overseas expansion case, but it recorded a 74.1 billion won net loss last year as a roughly 100 billion won letter-of-credit fraud and pension loan delinquencies overlapped. It also posted a 96.9 billion won loss in the first quarter of this year, widening the deficit.
Hana Bank and Shinhan Bank are maintaining profits. Hana Bank (2007) and Shinhan Bank (2012) entered the market relatively early and have built business bases. The Indonesian subsidiary of Shinhan Bank increased its net income from 16.5 billion won in 2024 to 22.2 billion won last year, and Hana Bank's Indonesian subsidiary (PT Bank KEB Hana) also rose from 44 billion won to 51.6 billion won over the same period.
The financial industry points to structural factors as the backdrop for Indonesia's weak performance. When a foreign bank acquires a local bank, it often assumes not only quality assets but also bad assets. As a result, they take on more bad assets than expected and need to build large provisions, meaning it takes considerable time to return to profit.
Geographic characteristics and policy uncertainty are also burdens. In Indonesia, which consists of more than 17,000 islands, managing borrowers outside Jakarta is costly. Some note that gaps in oversight in certain regions can lead to an increase in bad loans. In addition, since the launch of the Prabowo administration in 2024, even requests to participate in loans related to the sovereign wealth fund "Danantara" have emerged, further increasing the burden on foreign banks.
A banking industry official said, "Indonesia has strong regulations, so foreign banks have no choice but to closely watch the authorities' policy stance," adding, "Since the launch of the new government, policy uncertainty has grown, and the focus is more on stabilizing existing businesses than on aggressive expansion." The official added, "The later entrants with weaker business bases face even greater difficulties."