South Korean banks that have seen their profitability fall in a low interest environment are actively exploring new growth opportunities in the acquisition financing market.

The country’s top five banks - Woori Bank Co., Shinhan Bank Co., KB Kookmin Bank, KEB Hana Bank and Nonghyup Bank - provided a total of 5.6 trillion won ($4.8 billion) in acquisition loans last year, up 84.7 percent from 3.4 trillion won in 2014, according to compiled data from the banks on Monday. The number of acquisition financing cases also climbed to 37 from 34 in the same period.

Acquisition financing generally refers to traditional bank loans obtained for the merger and acquisition purpose and the bank makes a profit on interest payments from borrowers. Local banks with ample cash have been aggressively penetrating into the acquisition financing market.

Shinhan Bank topped the list with seven loans worth 2.04 trillion won in total, followed by Woori Bank with 11 loans worth 1.45 trillion won.

Shinhan Bank recently financed the acquisition of KDB Daewoo Securities Co. by Mirae Asset Securities Co., providing about 800 billion won. Woori Bank raised about 4.3 trillion won in cooperation with Shinhan Bank, NH Investment & Securities Co. and Hana Financial Investment Co. to back MBK Partners’ acquisition of Homeplus last year.

KEB Hana Bank provided 1.23 trillion won in 10 acquisition financing loans last year, up more than twofold from 573.4 billion won in nine cases in 2013.

“The size of acquisition loans expanded considerably as large companies such as Homeplus were put on sale last year, and M&A deals for ailing companies to be put on sale this year will also be able to be targeted by acquisition financing,” said a bank official in charge of corporate loans.

Local commercial banks are aggressive in acquisition financing business in order to offset slow growth in their retail financing. The deposit-loan interest margin dropped to 1.89 percentage points in February and the net interest margin slid to a record low of 1.58 percent at the end of last year.

By Kim Hyo-sung

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