Korea’s Biggest Bank to Wait for Right M&A Targets

Kookmin Bank to conduct M&As after its operations are normalized

Chairman Euh Yoon-dae of KB Holdings Co., said he pays great attention to M&As and that strategic ties with international financial firms is the route to take in order to boost the globalization of the Korean financial industry.
He pointed out that no domestic banks have been able to provide financial services to large Korean firms operating in global markets because they lag behind in terms of globalization.
Consequently, those global Korean firms have been getting their international financial services from foreign banks. The Korean banks have to be large enough to operate globally, which must happen through M&As, the top manager stressed.
Euh said UBS Bank’s total assets amount to 300 percent of Switzerland’s GDP, but Kookmin Bank’s total assets come to only 25 percent of GDP, stressing that Korean banks should be much larger than they are now for them to provide international financial services to Korean firms operating overseas.
From this perspective, he said, the privatization of Woori Bank should be aimed at making the bank bigger. In this sense, he is all for the merger of Hana and Woori financial groups and is also for Kookmin Bank taking over foreign banks such as South Africa Standard Bank and Australia-Singapore Bank when the bank becomes strong enough in about two years time.
The chairman’s statement may have larger implications, as key officials at those financial institutions are alumni of Korea University where Euh was chancellor.
When he talks about mergers and acquisitions, the most important matter to consider is whether it will help the national economy, not who will lead the deal.
He also urged the financial leaders to change their way of thinking. For instance, foreign exchange reserves are being used overseas for profit, but domestic banks borrow large amounts of foreign exchange from overseas banks at high costs. He proposed that the government should allow part of the reserves to be managed by domestic banks.
He said about $50 billion of the $270 billion in foreign exchange reserves should be allowed to be managed by domestic banks for double benefits; one being a positive effect on foreign exchange rates vis-a-vis the U.S. dollar and the other being domestic banks learning how to operate foreign exchange funds in overseas markets.
Euh also said he has no plans to cut the number of branches of Kookmin Bank throughout the country, although he said more customers use internet banking and mobile banking services, reducing the need to go to a bank for services. He said he will, however, see if the bank can resolve the problem by cutting the number of staff, as off-line banking services are still their main function.
He also said the high dependence of KB Holdings on banking affiliates for its profit is a problem that should be resolved in time, as it is not an easy problem to take care of.
The chairman said about 90 percent of the group’s income has been coming from the banking side and the non-banking sectors can’t catch up with the banking sector by boosting their income as it will cause serious problems.
He feared that the prices of M&As would jump a lot if the group tries to undertake them in a bid to boost the income of the non-banking affiliates. He will not try to speed up the move, but wait until the right targets emerge in the market during his term of office or during that of his successor. “We will never be in a hurry, but will take time to ensure we don’t have to pay too much,” he said.
With 316 trillion won in assets as of the end of last year, KB Financial Group has the largest domestic customer base as well as the widest network of services branches in Korea. Currently, domestic subsidiaries under the umbrella of the group consist of Kookmin Bank, KB Investment & Securities, KB Life Insurance, KB Asset Management, KB Real Estate Trust, KB futures, among others, while its overseas
subsidiaries include Kookmin Bank Hong Kong, Kookmin Bank International (UK), KB Cambodia, KB Investment & Securities Hong Kong, among others.
KG Financial Group was set up on Sept. 29, 2008 under a long-term growth plan and an extensive stock transfer from its major subsidiaries in order to meet the ever changing demands of the financial market, such as rapid globalization, declining profitability of traditional banking services, new market regulations, and the increased need for comprehensive financial services in the market. nw

Chairman Euh Yoon-dae of KB Holdings Co.