Great Increase in Net Profit
Industrial Bank of Korea returns to the 1 tln won net profit club in 2010 and determined to keep customers with better services
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President Cho Joon-hee of Industrial Bank of Korea.
The Industrial Bank of Korea is to focus its management on providing better services to its existing customers this year to reduce the number of customers changing their banks, the bank said in its management plan for 2011.
The bank will concentrate on the development of new "Star" products and provide full support to its employees with record reimbursements when they set excellent performance records.
The bank will also try to boost the health of its loans so that the effort will be settled in its corporate culture. The bank will also exert a full effort to expand its overseas operations this year to find new growth engines. The bank will be fair in competing with rival banks and just in its relationship with customers.
The bank posted 1.29 trillion won in net profit for 2010 up 81.6 percent YoY including 242 billion won in net profit in the last quarter of 2010. The 2010 net profit is the first time in three years that the bank posted more than 1 trillion won in net profit with the 2007 net profit amounting to 1.16 trillion won.
The bank attributed the large net profit to increased net interest margin in 2010 and large increase in loans, along with an effective management of its expenses. The interest income alone recorded 4.355 trillion won last year, up 22.3 percent YoY with total loans rising to 119.5 trillion won including 9.3 trillion won loaned to SMEs. NIM rose 33 basis points to 2.77 percent
Non-interest income came to 487.4 billion won, up 373.8 percent YoY due to large increases in fee income. Total outstanding loans to SMEs stood at 93 trillion won, 20.7 percent of total loans provided to SMEs by all financial institutions in Korea. Household loans rose 3.8 trillion won or 18.9 percent YoY to total 24 trillion won.
ROA recorded 0.79 percent and ROE 12.92 percent with BIS recording 12.51 percent rising by 60 bp.
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, approval of budgetary and operation plans of the Bank.
On 11 December 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 30 March 2005, granting the Bank to utilize more diverse sources of capital.
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 twenty 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% following the issue 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), 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 portions of shares previously held by the government. KEXIM also became a shareholder by purchasing KRW 200 billion in shares on January 29, and KRW 166.7 billion on June 23 in 2000. Coinciding with the Bank's listing on the Korea Stock Exchange in December 2003, KEXIM and KITC sold 46,000,000 of the Bank's shares in a public offering. KITC relinquished the rest of its ownership in the Bank by selling its remaining 48,532,922 common shares in a Global Depository Shares (GDS) offering the same month. In 2005, KEXIM divested 32 million of its common shares in the Bank, or 7%, to foreign and domestic institutional investors. As a result, the government's shareholdings continued to retract, decreasing to 66.7% of the total ownership. nw
Photo on courtesy of IBK.
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