Two of South Korea’s leading banks, Shinhan and Hana, have indirectly provided loans and investments to firms with links to Myanmar’s military, data exclusively obtained by The Korea Herald showed Thursday.

In September 2019, Shinhan Bank’s branch in Yangon, Myanmar’s largest city, issued loans worth 847 million won ($750,000) to Myanmar Posco C&C. The coated steel company was jointly established by Posco Group’s steel sheet-making arm Posco C&C and Myanmar Economic Holdings (MEHL), one of two military-owned conglomerates, according to data from activist group Justice for Myanmar. The other is the Myanmar Economic Corporation.

Myanmar Posco C&C was established in 2013. The two companies’ first joint venture -- Myanmar Posco Steel, a steelmaking company -- was founded in 1997. The military-controlled MEHL has a 30 percent stake in each firm, Justice for Myanmar said.

“Any Korean bank that provided loans to Posco is at risk of supporting Posco’s complicity in serious human rights violations in Myanmar,” said Yadanar Maung, a Justice for Myanmar spokesperson.

“Shinhan Bank’s loan to the Myanmar military joint venture in 2019 was egregious. We call on the bank to cut any other possible ties with the military-related businesses, which finance atrocity crimes in Myanmar.”

Posco Group admitted that its Myanmar Posco C&C received loans from Shinhan Bank that year. Shinhan bank declined to comment on the issue, only confirming that the loan was repaid in May last year. 

The civic group also voiced criticism of Hana Bank, which has maintained financial ties with the Bank for Investment and Development of Vietnam, the largest state-owned bank in the country in terms of assets. The Vietnamese state bank directly finances a military-affiliated telecom operator in Myanmar called Mytel, the group said. 

Mytel is a joint venture between Star High Company, a subsidiary of the junta-owned Myanmar Economic Corporation and Viettel, which is owned by Vietnam’s National Defense Ministry. Star High Company has a 28 percent stake in the telecoms carrier.

In July 2018, the BIDV provided loans worth $11.5 million to Mytel, which were to be paid in nine installments starting June this year until 2023, data showed.

To speed up its expansion in Vietnam, Hana Bank acquired 15 percent of the BIDV’s shares worth 1.01 trillion won in November 2019, becoming the second-largest shareholder.

“(Justice for Myanmar) calls on Hana Bank, the biggest foreign shareholder in BIDV, to use its leverage to ensure the BIDV cuts ties with the military-controlled mobile operator Mytel,” Maung said.

Hana Bank, in response, said the deal shouldn’t be viewed as “direct financing” of Myanmar’s military because it took place before the takeover on Feb. 1.

“The deal between the BIDV and Mytel was a normal financial transaction, which took place before the coup. ... We believe it is inappropriate to see the case as in providing direct financing to the military,” said a Hana Bank official. He added that the BIDV is also closely monitoring corporate risks related to the political unrest in Myanmar.

Regardless of the time gap between the transactions and the coup, however, banks should still have taken the human rights situation in Myanmar into account, as the Southeast Asian country was already the center of international attention for atrocities committed by its military, according to local experts.

In late 2016, Myanmar’s armed forces started to persecute the Muslim Rohingya people, despite the presence of a democratic government led by Aung San Suu Kyi.

“Local lenders, which made inroads into Myanmar markets should have paid keen attention to the military‘s violations of human rights, even before the coup. The reason why they didn’t take actions against military-related businesses is because they lack internal regulations designed to prevent financing and investments for companies responsible for human rights issues,” said Yoon Jin-soo, head of the ESG business division at the Korea Corporate Governance Service.

Lenders in dilemma

The claim by Justice for Myanmar puts local lenders in a dilemma as they have been seeking ways to expand their operations in Southeast Asian countries while placing ESG as the top priority for their future growth. 

The activist group said Korean banks’ financial ties with military-linked entities contradict their recent drives to foster ESG management, which focuses on corporations’ impacts on environment, society and governance issues.

“South Korean banks’ ESG commitments must be put into action in relation to loans to Posco and military businesses,” Maung said.

“Otherwise, they will meet with results that are far off from positive social impacts the banks have been claiming to strive for.”

Experts also pointed out that such political unpredictability should also be considered when making decisions based on ESG values in the future.

“Since a growing number of domestic banks are fostering ESG management and promoting their image as an ESG-oriented company, there is a great need for preemptive measures to take a closer look at social risks such as anti-democracy values or violation of human rights when deciding whether to lend money to local and foreign corporate borrowers,” said Kim Woo-chan, a finance professor at Korea University.

To support the nation’s transition toward a sustainable economy, financial circles have been ramping up their ESG initiatives in the wake of the prolonged COVID-19 pandemic.

Since 2017, financial behemoth Shinhan Financial Group has provided 16 trillion won through loans and direct investment to back companies in green sectors, while recently becoming the first Asian financial holding firm to join the nonprofit Value Balancing Alliance in Frankfurt, Germany, a cross-industry organization developing a valuation standard for monetizing impacts of ESG management.

Meanwhile, under the goal of achieving “coal-free finance,” Hana Financial Group is slated to launch an internal committee in charge of halting financial support for companies bearing ESG-related risks, as early as during the first half of this year.

“Currently, ESG practices remain at an early stage of development across industries and financial circles seem to place a higher emphasis on environmental issues than social and governance problems. They need to monitor their businesses’ social impacts at home and abroad more closely, even though it is hard to comply with all the three ESG values in the short term,” Kim said.

Established in April last year, Justice for Myanmar is a covert group of activists which publishes cases of alleged corruption by the Myanmar military and ties between military businesses and reported human rights violations.

Shinhan on Friday denied the accusation. It said the loan was for Posco C&C, which holds 70 percent stake in the joint venture between the South Korean steelmaker and the myanmar company linked to its military.

"Shinhan Bank provided loans to Posco, not Myanmar's military," Shinhan Bank said.

By Choi Jae-hee (cjh@heraldcorp.com)