Korea Federation of Banks chairman Ha Yung-ku has expressed his skepticism at the profit-making ability of local commercial banks, highlighting their lowest-level of profitability compared to overseas banks.

The return on assets of 10 biggest South Korean first-tier banks stood at 0.38 percent on average as of 2013, which is far behind 1.28 percent ROA of the world’s 1,000 major banks, Ha told reporters in Baku, Azerbaijan, where the Asian Development Bank members’ four-day annual gathering is being held.

Noting that Korea ranked 83rd among 94 countries in banking sector profitability, he advised the local banks to actively make inroads into overseas markets to seek fresh opportunities.

“U.S. banks have a margin of 3 percentage points between their deposit and lending rates although the country’s policy rate is zero,” he said. “While Korea’s policy rate is 1.75 percent, the gap for Korean banks is 1.7 percentage points.”

In addition, it is difficult for local banks to earn much from the noninterest sector ― including charges on customers’ usage of automated teller machines ― as they faced severe criticism for high service fees, he added.

Considering the unfavorable situation, the banks should seek higher deposit-loan margin and earnings from service fees or commissions in foreign markets, said the bank lobby head.

Regarding the coming Internet-oriented banks, a prospective business model of the policymakers-led fintech, he raised the necessity of a specialization strategy for success. He cited the largest U.S. Internet bank, Charles Schwab Bank and similar lenders, owned by General Motors Company.

“They could generate success without competing with ordinary banks through fostering specialization,” he said.

Ha took office as the KFB chairman last November after serving as the chief executive of KorAm Bank, later absorbed into Citigroup, from 2001 to 2004 and Citibank Korea from 2004 to 2014.

By Kim Yon-se (kys@heraldcorp.com)