Launching Independent Operations

KB Kookmin Credit Card split from Kookmin Bank for independent operations with bolder strategies

KB Kookmin Card Co. officially declared its split from Kookmin Bank to become an independent financial services company in a ceremony held on March 2, ending its operation as part of the bank since the merger in 2003 in the wake of sluggish credit card business.
Since the merger with the bank, its ranking kept growing right behind Shinhan Card, the leader in the credit card sector, with its assets rising to 12.4 trillion won at the end of 2009, with 65 trillion won used by its 2.11 million customers around the country.
President Choi Gi-eui said the ultimate target of KB Kookmin Card is to be a top credit card company in Korea, making it clear that he will lead the company to take over Shinhan Card, the leading credit card company in Korea.
The biggest advantage for the Kookmin Card is the wide operational network built jointly with Kookmin Bank over the years providing a variety of services including installment payments, insurance sales, travel and online sales. It will also be able to take on other new services.
The CEO is counting on the company’s plan to launch the financial savings system for the first time in the credit card industry, which combines a pre-discounting system on cars and home appliances with loan products.
The KB Financial Group decided to split the credit card unit from Kookmin Bank to let it grow as fast it can as an independent affiliate, seeing that Shinhan Card’s operating profit last year nearly matched that of Shinhan Bank, a major affiliate of the financial group, raking in 1.1 trillion won, compared to the 1.6 trillion won generated by Shinhan Bank.
The KB financial group wanted to see its credit card operation generate more profit by more actively operating its business. Industry sources expect that competition would grow tougher in the credit card industry after the KB credit card spinoff.
But industry sources are not sure the move will be a success, citing that the credit card industry’s rough business environment affected by such economic trends as a slow real estate market and increased household debts, with some critics even calling the move “a tempest in a tea pot,” with the existing credit card companies carving up the market with no room to spare.
Financial authorities are concerned that the KB credit card might fire up competition to an excessive degree, cutting rates and profits for existing credit card firms and creating a rapid swell in household debt as credit card firms would undoubtedly begin to issue cards to individuals with low credit ratings due to heightened competition, which would become a time bomb waiting to explode.
KB Kookmin Credit Card Co. saw its start in 1987 and easily became the top credit card firm in Korea, but in 2003 its operations grew worse due to loose risk management and the indiscriminate issuance of credit cards. As the company’s operations hit bottom, the company was closed down and Kookmin Bank took over its operation with the company becoming part of the bank.
The credit card had outstanding loans of 12 trillion won and had trouble issuing corporate bonds amid the financial crisis, leaving as its only option out of the crisis a merger with Kookmin Bank. At the time, the credit card had to pay 6.2 percent annual interest on its borrowings whereas Kookmin Bank had to pay only 3.9 percent.
But after the merger, the credit card operation did go well although its market share tumbled due to tough competition. One of the major reasons for sluggish business results had been slow decision making due to the bank’s many levels of its approval processes.
Many financial critics expect the new credit company’s operations would not be smooth. First, it would have to pay around 1 percent more on its borrowings, as it is no longer part of Kookmin Bank, which has a higher credit rating, and it will have to pay for operational expenses out of its own pocket. They expect the new credit card firm will have trouble securing cardholders.
Financial authorities are concerned that excessive competition might send household debts significantly higher and lead to bankruptcies among those debtors. The Financial Supervisory Service will have to monitor the situation closely so that the credit card market does not overheat. nw

President and CEO Choi Gi-eui of KB Kookmin Card Co.

Photo by courtesy of KB Kookmin Card Co.