Tighter Risk Management

Shinhan Financial Group assigns Boston Consulting Group to check risk management system

Shinhan Financial Group is preparing a plan to strengthen its risk management system, especially the group's operational set up after the financial crisis is over including the organization and other areas of the group's management, officials of the group said recently.
They said the group has hired the Boston Consulting Group to have a look at the financial group's overall risk management system including those for credit card, bank, insurance and overseas operations.
This is the first time for the group to hire an outside consulting firm to analyze its operations, especially on its risk management system.
This might lead to an overall shake up of the group's set up, risk management systems of affiliates and organization, the officials said.
The central point of the check up is the holding company overseeing the risk management of its affiliates with strong ownership. The crucial issue is how much control the holding company will have over the risk management of its affiliates, they said.
If such a strong grip is allowed for the holding company, the power of President Shin Sang-hoon will be even greater, financial sources said.
The group's recent moves are in response to pressure to reform its management structure and strengthen its risk management, the sale of KIKO, and the fall in profitability to cope with dangers both from within and without.
The group first will touch up its risk management philosophy, according to an official who is participating in the analysis of the risk management system. He said the group has been faced with criticism that its preemptive risk measures have not been on the mark and are too loose, requiring the group to change its risk management culture so that any newcomer to the group would know how to help run the risk management system of the group from the start.
The risk management system will also be a deciding factor in the evaluation of branch operations. Work is done on new business and overseas projects in terms of risks involved.
The official said the risk management system check up is part of the group's strategy to find new courses of operation after the current financial crisis abates as the group's main operation has been focused on the successful merger of Chohung Bank and LG Card.
He went on to say that a special task force has been put to work on studying the risk management system in cooperation with BCG and the final result will be issued next month after two months of study.
A Shinhan official said the financial authorities are also keen on the report on what Shinhan can do to strengthen its risk management system, as it could be used as a model for risk management systems by other financial institutions in Korea.
Shinhan Bank, set up in 1982 with investments by Koreans in Japan, has grown big enough to be among the four largest banks in Korea and now is on the verge of expanding its operations to Japan. The bank announced that it has already acquired preliminary approval from the Japanese financial authorities in line with its plan to launch the operation of a wholly-owned subsidiary from the third quarter after getting an official license to set up the bank in the second quarter under the name Shinhan Bank Japan. Shinhan will invest 280 billion won or 20 billion yen in the new Japanese subsidiary, which will be only the second foreign-owned banking concern in Japan after Citigroup.
The bank set up branches in Osaka in 1986 and then in Tokyo and Fukuoka, catering to Korean residents and Korean businesses in Japan. Shinhan branches' total assets amounted to 154.6 billion yen as of March including 105.6 billion yen in loans with most of the loan funds borrowed from its mother bank in Korea.
The new wholly-owned bank, SBJ, will take over the three branches and secure funds in Japan and cater mainly to Japanese customers.
Manager Park Joong-hun of the Tokyo Branch said SBJ will try to attract deposits from Japanese customers and make loans with the deposit funds, not borrow funds from the home office in Seoul. He also said the significance of the bank's move is that Korea has become the first to set up a wholly-owned bank in Japan among Asian banks, which will have a big impact on Korea-Japan economic relations. nw

Shinhan Financial Group President Shin Sang-hoon