On the Road to Expansion

Kookmin Bank CEO Kang to take more aggressive approach to expansion into other financial sectors

President Kang Chung-won of Kookmin Bank said on Oct. 29 that the bank will enter the consumer banking market as early as possible based on its ongoing study, regardless of the impending reorganization of the bank as a financial holding company.
The largest retail bank in the country is likely to set up a new operation to deal with small-sized loans, similar to credit loan operators in scale.
The CEO also said the bank will make a decision on the takeover of a securities firm before the year is out, adding that it is also on the lookout for other areas of the financial sector to enter. He said he is still eager to take over Korea Exchange Bank (KEB), which it previously failed to buy due to the legal troubles of U.S.-based Lone Star. The U.S. hedge fund is the controlling shareholder of KEB.
Kookmin said in a public notice that it will take over a securities company to enter the securities business, but has not ruled out launching a new securities firm.
It will also study conditions to take over a non-life insurance firm under its long-term management plan.
The reason for the bank's urge to branch into other areas of the financial industry is the concern that competition will intensify in the coming years. Kang said the bank needs to strengthen its operations in such areas as risk management, business initiatives and internal control in order to maintain its position as the nation's leading bank, despite a tougher banking environment.
In the meantime, the bank announced that its net income for Q3 amounted to 775 billion won, about the same as the same period last year, not counting one-time items such as additional corporate tax. Accumulated net income though Q3 of this year totaled 2.194 trillion won, down 2.8 percent YoY.
Return on assets (ROA) stood at 1.44 percent, and return on equity (ROE) 19.63 percent, up 0.15 percentage point and 2.15 percent, respectively, YoY.
Kang, who was retained to serve a second term as head of the bank at the shareholders'meeting on Oct. 31, is likely to take a more aggressive approach in running the largest retail bank in the country.
Kookmin intends to firm up its profile as the country's leading bank through the globalization of its operations and expansion of its assets in the next three years. The bank has been able to streamline its operations by reorganizing its setup and raising its profit levels during Kang's first term.
The bank has set out to expand its deposit base by introducing free installment deposit accounts paying 6 percent interest per year. By its maturity period, the one-year free installment deposit account will pay 5.2 percent annual interest, 5.8 percent interest for the two-year free installment deposit account and 6 percent for the three-year free installment deposit account. The interest rates are far higher than the current 4-5 percent rates paid on free installment deposit accounts, first launched by Kookmin six years ago.
The bank is expected to focus on expanding its deposits by raising interest rates overall. For a one-year WINE account, the bank will pay 6.05 percent per year at the maximum, higher than what most other banks pay on similar accounts.
A bank official said the move is intended to stem the outflow of funds into stocks and win in the competition among banks to attract deposits.
The bank has also been moving fast on its plan to become a financial holding company, with a particular emphasis on non-banking businesses. It has reopened talks on the takeover of Hanuri Securities and plans to set up a new securities firm if the price is too high. Upon entering the securities business, the bank will move to takeover a non-life insurance firm.
Kookmin has also been stepping up its efforts to expand its overseas presence by taking over or buying a stake in a foreign bank. Kang predicted that a good result will emerge very soon as the bank has been working to expand operations in Southeast and Central Asia.
Officials of its rival banks, alarmed by Kookmin's aggressive management policies, said competition among banks will get much tougher down the road as Kookmin moves to expand its turf.
Woori, Shinhan, the Industrial Bank of Korea (IBK) and Hana are not likely to sit still, but will step on their gas pedals to race ahead of Kookmin in many financial areas, especially with the Capital Markets Consolidation Act ready to come into effect in 2009. The new law will remove the walls dividing the segments of the financial industry, allowing one operator of a financial business to take on operations in another financial sector. For example, a bank will be allowed to simultaneously operate a securities firm and an insurance firm. The Act will also further open the local financial market to foreign firms. nw

Pres.&CEO Kang Chung-won of Kookmin Bank.