International banking is a risky business. The big boys seem compelled to have an investment banking/trading operation, which makes excellent money in good years and becomes a dog in downturns or even static markets.

Western regulators seem to have discovered bank profits as a nice source of tax revenue, and so invent ever more arcane “offenses” for which they can fine banks billions of dollars. Countries like Greece that get into difficulties are given bailouts, which always seem to come at the expense of international bank shareholders.

But we can avoid this risk. Buy banks that concentrate in solid, growing domestic markets and that have friendly regulators and little exposure to risky businesses like investment banking. Such a haven is our Conservative investment Shinhan Financial Group (NYSE:SHG).

It has an additional advantage: It’s selling at a valuation far below most of the international behemoths.

Korea has three large banking groups: Kookmin, Woori and Shinhan. They own large banks, and also leasing companies, brokerages and other providers of financial services. However, since the higher-risk operations of leasing and brokerage are separate, there is not the risk to the overall institution that exists in the big U.S. and European universal banks.

Korean banking has one risk that is higher than in other countries: Its consumer debt is 81% of GDP, compared with 77% in the United States, according to a recent McKinsey’s report. Korean consumer finance also includes some unsound peculiarities, such as interest-only mortgage loans.

However, in today’s easy-money conditions, with the economy growing steadily,  high household debt is not a cause for immediate alarm, and the country’s lower level of government debt and sustained balance of payments surplus means its overall debt position remains solid.

A few weeks ago, I described South Korea as a “rich country with poor country virtues,” and those virtues make its economy an exceptionally attractive place to invest. It has GDP per capita of $35,277 at purchasing power parity, 65% of that of the United States, yet it runs a budget surplus, has positive real interest rates, and has avoided most of the policy errors of the rich world.

 It also has projected 2015 and 2016 growth rates of 3.3% and 3.5%, according to the IMF—not stellar, but better than all its rich world comperes, including Singapore. While Korean governments are relatively frugal, the society takes education seriously, spending 7.6% of GDP on it, well ahead of the OECD average of 6.3% of GDP. South Korean students rank near the top in international tests of mathematics, science and reading, and the country’s research universities are world class.

ROE Lacking

The problem with Korean banks is return on equity, which is generally lower than healthy Western banks because of the highly competitive banking market—Shinhan’s return on equity in 2014 was only 7.3%, for example, compared with JPMorgan Chase’s 9.7% and Wells Fargo’s 12.6%.

However, profitability is increasing: Shinhan’s 2015 first-half results, released recently, showed net income up 15% from the previous year, at $1.1 billion. While interest income was down 2% on the previous year, non-interest income was up 52%, with securities income especially strong.

The Bank of Korea’s two interest rate cuts in the quarter (to 1.5%, still above the local inflation rate, suggesting that Korea, at least, is not in a significant “bubble”) squeezed the group’s net interest margin, excluding fee income, from 2.31% to 1.99%.

The bank’s BIS capital ratio increased from 13% at the end of 2014 to 13.3% on June 30, 2015, of which 11.5% was Tier 1 capital.

Shinhan’s shares are currently trading at 9.8 times trailing earnings and 8.0 times expected 2016 earnings, compared with 12.3 times trailing earnings for JPM and 14.0 times earnings for WFC.

The shares are also trading at 67% of net asset value, far below the 117% of net asset value of JPM and 174% of net asset value of WFC.

Finally, the shares yield a reasonable 2.3% gross, based on 2014 dividends of 950 won ($0.82) per share.  However Korea exacts a rather high dividend withholding tax of 22%, so the shares should be held in a taxable account to take advantage of the U.S.–Korea double tax treaty.

Shinhan is a solid, well-positioned financial group in a stable country with an expanding economy and good management. It should be a core part of your Asian financial holdings.