Overseas investment by South Korean financial institutions increased to nearly 500 trillion won ($426.8 billion) in the first half of this year as they sought to diversity their investments, according to data released by Bank of Korea (BOK) on Thursday (September 24).
Financial institutions invested 486 trillion won abroad in a search for assets with higher yields while domestic interest rates remain low. This is 3.8 times higher than the end of 2013, when overseas investment began to rise significantly.
Non-bank institutions such as securities firms, insurance companies and pension funds logged the highest proportion of overseas investment between 2014 and June this year, accounting for 91.8 percent of the total increase (357 trillion won).
The portion of overseas investment among assets managed by non-bank financial institutions rose to 21.8 percent in the first half of this year, which was a 11.5 percentage points increase since 2014. However, the portion of overseas investment among assets that banks managed grew to 1.3 percent, or 38 trillion won, a rise of only 0.8 of a percentage point.
Investment in bonds and stocks accounted for 43.2 percent and 36.2 percent respectively of all overseas investment, or 210 trillion and 176 trillion won. By region, North America and Europe accounted for 46.1 percent and 22.2 percent respectively.
Overseas alternative investment in real estate continued to show strong growth, recording 100 trillion won, though it slowed down a bit due to the coronavirus pandemic.
“In the first half of this year, overseas investment by domestic financial institutions grew 4.6 percent, lower than last year’s 25.7 percent,” said BOK. “Overseas investment slowed down as the pandemic raised the concerns over the sluggish commercial real estate market and on-site inspections of overseas investments become difficult.”
BOK predicted that overseas investment would continue to increase steadily in the future, but suggested that financial institutions needed to strengthen risk management and investor protection systems as potential risks related to overseas investment might increase, depending on trends with the pandemic.
“Investment in high-quality foreign bonds may not be considered risky, but the possibility of investment loss could increase if their credit risk rose as the management conditions of foreign companies deteriorate,” BOK warned. “The possibility of losses from alternative overseas investment has also increased since the pandemic.” (Reporting by Jinwon Lee)