IBK’s 49th Anniversary

Bank continues to cut costs and focus on tight risk management due to bleary 2nd half economic outlook

The Industrial Bank of Korea (IBK) netted a Q2 profit of 306.9 billion won, down 18.9 percent from the preceding quarter, as the loss provision increased in the first half due to projected uncertainty in the economy in the second half, the bank announced recently. Profit from the loan sector jumped by 1.1 trillion won, up 5.9 percent from the previous quarter, with net interest margin rising to 2.84 percent, up 6 basis points from the preceding period. In the non-interest earning sector, net profit amounted to 178.7 billion won due to increases in sales fee income in the area of bancassurance sales owing to the economic recovery.
Outstanding loans to SME customers increased by 1.7 trillion won in Q2 to total 92.5 trillion won, boosting the share of loans to SMEs to 20.3 percent in the quarter.
The bank has been able to boost its personal loans through such products as the IBK Co-fix Housing Mortgage Loan and the U-Nesting Loan, among others, to bring personal loans to 22.5 trillion won. The ratio of bad loans has been cut by 0.07 percent to 0.7 percent, while that for corporate loans fell to 0.77 percent from 0.85 percent in the previous quarter. The ratio of bad housing loans also fell in the second quarter from 0.38 percent to 0.37 percent, improving the ratio of non-performing assets to 0.171 percent from 0.190 percent.
In the area of profits, ROA improved to 0.86 percent and ROE reached 14.34 percent, achieving stable growth rates with the cost income ratio rising to 27.3 percent, the lowest among banks, thanks to continuous cost saving efforts. The bank will continue to watch the restructuring of SMEs and risk management due to uncertainty in the economy in the second half, IBK officials said.
Established under the Industrial Bank of Korea (IBK) Act in 1961, the Bank shares a special relationship with the Korean government. The Bank’s primary objective is to “promote 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. Due to the Bank’s critical role in implementing SME promotion policies, it receives the highest level of implicit and explicit support from the government. Operations are guaranteed in principle by Article 43 of the IBK Act, which states, “The Bank shall cover any net loss incurred during a particular fiscal year with its reserves and if the reserves are insufficient, the government shall provide funds to cover the deficit.” As the Article stipulates, if the Bank’s reserves cannot cover the annual net losses incurred during operations, the Korean government is legally obligated to replenish the deficit. Furthermore, it is the only bank in Korea allowed to issue Small and Medium Industry Finance (SMIF) bonds. SMIF bonds provide the Bank with a low cost funding advantage over commercial banks. The aggregate outstanding balance of SMIF bonds can be issued to 20 times the Bank’s paid-in capital plus its reserves.
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 (KEXIM), the IBK was chosen to facilitate the initiative.
A major part of the plan involved the partitioning of the Bank’s equity stock. Upon its implementation, KDB and Korea Investment & Securities Co., Ltd. (KITC) became new Bank shareholders in December 1999, receiving shares previously held by the government. KEXIM also became a shareholder by purchasing 200 billion won in shares on Jan. 29, 2000, and 166.7 billion won worth on June 23, 2000. nw

IBK President Yun Yong-ro delivers his speech at the ceremony for the IBK’s 49th anniversary on Aug. 2.

IBK President Yun Yong-ro, center, clap hands to congratulate the Ceos of the SMEs selected to enter the SME Hall of Fame this year during the 7th SME Hall of Fame ceremony on Aug. 2.