IBK to Expand Personal Loans
Bank to open 15 new branches to increase less risky private loans and cut SME loans for more healthy operations
President Yun Yong-ro of the Industrial Bank of Korea, in his New Year¡¯s speech, said the bank will open 15 branches to deal exclusively with individual loans to achieve a balance between corporate and private loans provided by the IBK in the new year.
The IBK CEO said he would go to any length to expand personal loans even if he has to change operational practices, organizational culture and personnel policies. He said the bank¡¯s staff has a tendency to quit pursuing personal loan customers if one or two tries don¡¯t work because they are not used to dealing with private clients, pledging that he will see that they stick with potential borrowers until they sign papers to take out loans.
Yun said he will also make changes in the bank¡¯s personnel policies, which favored those in the corporate loan department over those in the personal loan sector; those with experiences lending to corporate borrowers got faster promotions at the expense of their counterparts in the private loan section. He said he will change that practice.
He said the objective of his new management policy is aimed at making the IBK healthier with the corporate loans¡¯ default rate four times higher than personal loans, as SMEs make up most of the business-loan borrowers and their financials become poorer when the economy is going through rough times.
He said the bank should cut down on its loans to SME borrowers, as its losses from SME loans are covered by taxpayer money, which is why he is trying to expand the bank¡¯s less risky personal loans.
However, he doesn¡¯t mean to cut down on loans to SMEs. In fact, the bank can still expand the funds intended for corporate loans. He plans to reduce the level of SME loans from the current 81 percent to 70 percent as stipulated in the IBK Law and ultimately to 60 percent if he can manage it.
He also plans to increase the restructuring on the financially poor SME borrowers as the situation demands. In fact, he said, the bank has been conducting restructuring for over 500 SME borrowers every year and those with potentially sound financials, but have short-term liquidity problems, will get loans. But those with bad financials and no hope for survival will be put out of business under the bank¡¯s so called ¡°change-up program,¡± the IBK CEO said.
On the outlook for the bank¡¯s operations this year, Yun said the bank is expected to increase its annual profits to the pre-financial crisis level of 1 trillion won. He said the bank would incur a loss of income of about 50 billion won due to a 0.5 percentage cut in the mortgage loan rate on Jan. 4, but can manage it without much problem. The move was intended to help reduce the burden on private borrowers, he said.
The CEO said the IBK plans to expand its overseas operations down the road and recently dispatched a number of the bank¡¯s staff to Indonesia to look for a local bank for a merger, as it is much easier to acquire a local bank than to set up a wholly-owned subsidiary to advance into the Southeast Asian country fast.
Established under the Industrial Bank of Korea Act in 1961, the bank shares a special relationship with the Korean 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 Korean economy.¡± Due to this public policy role, the government retains full control over the bank including the appointment of management and the approval of budgetary and operational plans of the bank.
On Dec. 11, 2003, an amendment was made to the IBK Act, giving the bank more autonomy in its operations. Among other activities, the bank was allowed to invest in the equities and debt securities of the SMEs and to set up budgeting requirements for general and administrative expenses besides labor costs. An additional amendment was made to the Articles of Incorporation of the Act on March 30, 2005, granting the bank the right to utilize more diverse sources of capital.
Prior to 1994, the bank¡¯s entire issued-share capital was held by the Korean government. The government ownership decreased to 64.5 percent following the issuance of new shares to the public and bank employees in 1994. In late 1999, the government announced a recapitalization plan to rehabilitate investment trust companies still reeling from the Asian financial crisis. Along with the two other state-controlled banks, the Korea Development Bank (KDB) and the Export-Import Bank of Korea (EXIM), the IBK was chosen to facilitate the initiative. nw
President Yun Yong-ro of the Industrial Bank of Korea |