Leader in SME Finance
Industrial Bank of Korea, government to provide financial assistance to SMEs
The Industrial Bank of Korea, established under the Industrial Bank of Korea Act in 1961, shares a special relationship with the government. The bank's primary objective is to promote the independent economic activities of small and medium-sized enterprises (SMEs) and to enhance their economic position in the national economy.
The government retains full control over the bank including the appointment of management, approval of its budget and operational plans due to the public policy role of the bank.
The IBK plays a critical role in implementing SME promotion policies, which provides it with the highest level of support from the government both implicit and explicit.
On Dec. 11, 2003, the IBK's charter was amended to give more autonomy to the bank's operations. The bank was allowed to invest in the equities and debt securities of SMEs and to set up budgeting requirements for general and administrative expenses besides labor costs. An additional amendment to the articles of Incorporation of the act on March 30, 2005, grants the bank the right to utilize more diverse sources of capital.
In terms of quantity, quality and SME-tailored products and services, the bank has maintained the leading position in SME finance for the past 47 years. As in years past, the bank demonstrated unparalleled strength in providing financial services and expertise to SMEs.
Pursuant to the IBK Act, the bank must provide $1 billion, or 81.3 percent of its loans, to SMEs by year-end 2007. With an 18 percent share of the SME financing market, the bank has distanced itself from its nearest peer by about 4 percent. The bank's sustainable loan growth policy represents its unwavering leadership in the SME loan market. Other commercial banks in Korea have shown fluctuations in their SME loan policy since they depend on the economic cycles rather than their expertise in SME finance.
The bank took full advantage of the market situation in 2004 and 2005 -- when most other Korean banks turned away from the SME loan market -- and attracted loyal and high-quality SME customers. Moreover, the bank successfully defended its leading position in SME finance while competition among banks for SME customers had been fierce due to strengthened regulations on housing-related loans in 2006 and 2007. The sustainable SME loan policy sets the bank apart from its peers and instills loyalty for the bank into SME customers.
In addition to the tremendous quantitative growth, the bank achieved its goal of maintaining sound asset quality in 2007. Loans classified as substandard and below represented 0.72 percent of total loans as of year-end 2007. Along with a total delinquency ratio (including credit cards) of 0.50 percent, the bank has maintained asset quality indicators below 1 percent for two consecutive years. The asset soundness resulted from strategic loan management, which is comprised of loan management by industry and by credit ratings. SME loans with credit ratings of 'BB'or above accounted for 72.7 percent of all loans.
Of the SME loans, 63.9 percent were given to manufacturers and only a limited portion was extended to volatile industries such as wholesale and retail trade, construction, lodging and dining. This sound loan policy underpins the bank's strong performance and highlights its commitment to both qualitative and quantitative growth in SME financing.
The bank's 2008 plan for SME loans, given the uncertainties in the global financial market, will be to put its priority on profitability and asset quality. As the global economy as a whole is predicted to undergo a slowdown in 2008, loan competition among banks for SME customers is likely to be mitigated. In order to focus on profitability and asset quality, the bank set its SME loan growth target at 11.7 percent, lower than its target in past years.
In terms of loan balance, the bank plans to increase its SME exposure by 8 trillion won. Among the 8 trillion won, the bank plans to allocate 7.6 trillion won to corporate customers with a 'BB'or higher credit rating. Moreover, greater efforts will be made to re-price loans that have not fully reflected rising funding costs due to the fierce competition in the SME loan market. nw
President Yun Yong-ro of the Industrial Bank of Korea.