Strategic Focus on IB Sector

Industrial Bank of Korea moves to strengthen its IB sector by setting up new securities firm

The Industrial Bank of Korea has decided to set up a securities firm under its strategy to strengthen its investment banking sector to be ready for the enforcement of the Capital Markets Consolidation Act in 2009. The bank said it will invest 10 billion won to set up the new securities arm, which it has finally decided to set up after studying various options including the take over of a securities firm.
The bank said it will apply for the license to the financial authorities to go ahead with its decision. The bank said the name of the new securities firm would be IBK Securities among the several names that are under study.
The bank is already in search of a person who will head the new stock brokerage with an extensive experience in the stock market.
The Industrial Bank of Korea, in addition to its traditional banking areas like corporate and consumer banking, has been expanding its investment banking in a rather aggressive manner not only to widen its revenue sources, but also to be ready when the Capital Markets Consolidation Act comes into effect sometime in 2009.
The bank has been engaged in varieties of investment banking businesses ranging from project financing, SOC investing, and private equity funds. In 2006, the bank reorganized its business structure, secured additional professional manpower, and invested in its employee training programs to effectively cope with new challenges to the business environment, such as the new capital market law.
The bank's investment banking division took a major step forward in 2006 with its assets growing to 3,726 billion won in total, which was a 49 percent increase from 2,495 billion won in 2005. Its net income amounted to 63 billion won. Among the invested assets, the rate of credits classified as substandard and below declined to 0.03 percent in 2006, a significant improvement from 0.032 percent in the previous year and a solid indicator of the bank's improving asset quality.
The bank has allocated a significant amount of resources on expanding its investment banking sector. Some of the measures the bank has taken include securing additional professional manpower and conducting employee-training programs, as well as promoting the department to business division status. Though its activities in investment banking, business feasibility review, SOC real estate financing, merchant banking, and private equity funds, among others, the investment banking division achieved over 2 billion won of net income per capita and 5.3 percent of the cost income ratio in 2006. Going forward, the bank expects the investment banking division to continue to deliver high profitability and develop new business opportunities.
The bank's treasury management strategies are overseen by 'Management Strategy Board'which is presided over by its Chairman and CEO, and the "ALM Committee,"which is headed by the Deputy CEO.
Utilizing important business information such as domestic and overseas market prospects and interest rates, the bank's treasury & global markets division controls funding position, interest rates, liquidity risks, and margins. In 2006, the division successfully achieved the four objectives of increasing capital market funding, lading to an increase in non-interest income.
In addition to providing policy financing while serving other retail and commercial banking needs, the bank continued to take greater advantage of its ability to issue Small Medium Industry Finance bonds in 2006. As stipulated under the IBK Act, the bank can issue SMIF bonds up to 20 times its equity capital, while commercial banks, in accordance with the Banking Act are limited to issuing bonds that are up to only a three fold increase of their equity capital. As of year-end 2006, the bank's SMIF bond issuance amounted to 32.9 trillion won, which comprised of approximately 31.8 percent of the total funding volume. While variations exist in the capital requirements between the IBK Act, and the Banking Act, the bank's SMIF bond issuance under the IBK Act provisions in 2006 corresponded to approximately an eight fold of its equity capital and slightly in excess of a four fold pursuant to the Banking Act.
The IBK also sold 600 billion won in hybrid bonds to Korean institutional investors for recapitalization purposes in December 2006, making it the first Korean institution to do so. nw

President Kang Kwon-seok of Industrial Bank of Korea.