Nonghyup’s Massive Restructuring

NH Financial Holding and NH Economic Holding to divide NH’s operations

President Lee Myung-bak said the National Agricultural Cooperative Federation (NH) should be managed like a corporation at a ceremony officially launching the newly organized NH, divided into economics and financial holding companies, on March 2.
“We should look at the Netherlands, which has a highly effective agricultural competitive edge in the world, although its agricultural conditions are not favorable,” the Chief Executive said at the ceremony attended by some 600 government officials including Minister Suh Kyu-yong of the Ministry of Food, Agriculture, Forestry, and Fisheries, NH officials, staff and guests from related organizations. “We have to launch reforms in our agricultural base, not just in cultivating, but to develop into the second and third phases of agricultural reform to be a strong agricultural country. Nonghyup is in a very advantageous position as it has a big market like China and a high-income country like Japan nearby to sell its farm produce and products,” Lee added.
The National Agricultural Cooperative Federation (Nonghyup) officially launched its new operation, which is divided into two holding companies, one an economic holding company and the other a financial holding company under a massive restructuring of its set up in what is said to be the largest such move in the 51 years since its launch in 1961, Nonghyup said on March 2.
The economic holding company, headed by Chairman & CEO Shin Choong-shik, will take charge of the retailing of farm produce, Namhae Chemical Co., a fertilizer producer, animal feed production, and livestock businesses, while the financial holding company, led by President Kim Soo-kong, will manage the banking, life insurance, non-life insurance and a securities firm.
Chairman Choi Won-byung of the Central Cooperative will supervise the two holding companies and the central cooperative’s capital will be increased to 38 trillion won from the current 14.5 trillion won.
He said the savings banks under the financial holding company will be managed by CEOs in close cooperation with the holding company so that they will be able to provide the same financial services run by commercial banks. They will provide 10 trillion won in loans to various farm organizations and 500 billion won for the education of farming communities across the country by 2020.
The central cooperative will hold a 100 percent stake in the financial holding company with no foreign stakeholders. Nonghyup Bank will widen its business areas to specialize in Nonghyup’s unique financial products tailored to the financial needs of farmers. Therefore, its assets will increase to 420 trillion won by 2020 with the projected net profit rising to 3.8 trillion won from 700 billion won in 2010.
It will also engage in credit card, investment banking, insurance and other non-banking businesses and also expand its overseas operations.
Nonghyup Financial Holding Co. will be the fifth largest financial holding company in Korea in terms of assets, as it includes a diverse financial business portfolio in wide-ranging financial sectors such as banking, life insurance, non-life insurance, securities, futures, asset management, and capital management.
The financial industry expects the strengthening of Nonghyup’s financial operations to increase the competition among banks with Nonghyup having a huge advantage in the number of branches and other outlets across Korea. Chairman Shin is confident that Nonghyup will emerge as a strong contender in the areas of retail banking and insurance. Nonghuyp will expand its business territory in consumer financing, in particular, taking advantage of its 1,172 branch outlets around the country, the most among banks in Korea.
The insurance industry is expected to see fierce competition in the area of bancassurance, with both NH Life Insurance and NH Non-Life Insurance poised to wield a huge advantage with the number of their business outlets across the country.
NH Mutual Savings holds 33.1 trillion won in assets (as of 2010), the fourth highest behind Samsung Life (148 trillion won), Korea Life (65.2 trillion won), and Kyobo Life (58.9 trillion won). Exemption of the rule for five years that a bank whose market share of its bancassurance sales should not reach 25 percent will benefit Nonghyup insurance companies and financial institutions.
NH insurance firms have shortcomings compared to its rival insurance firms. First of all, it has far fewer planners than its rivals. Its 1,500 planners is roughly one-thirtieth what Samsung Life has and it will have tough time increasing the number, although it is working on it.
NH non-life insurance firm’s assets and premium collection stand at around 800 billion won, about one-tenth that of the life insurance firm.
Rumors said NH non-life insurance is on the verge of taking over Ergo, Daum Direct, and Green non-life insurance, which has been hit hard by its worsening cash flow. Although NH non-life denied the rumors, industry sources said the company has enough cash to beef up its scale of operation by acquiring one of the companies. In isolated regions in the country Nonghyup has a higher profile than the nationwide commercial banks, and when allowed to sell as much bancassurance as it can, no one knows what kind of market share it will have to add to its current 10th ranking.
NH Financial Holding has mapped out a three-stage development plan for 2020. By 2012, it will try to secure competitive power. In the second stage, by 2015, it will strengthen its leadership as an integrated financial entity. By 2020, it will continue on its way to becoming a global integrated financial cooperative group.
It will focus on retail banking centered around livestock and farm towns and then move on to cities to expand its retail banking and corporate banking so that it will become a global retail and wholesale bank
Chairman Shin said he will focus on strengthening corporate banking, investment banking, global banking, securities and asset management and other weak areas of Nonghyup’s financial operations. He said he will also see that the financial business areas dealing with loans to the general public and social causes will be continuously built up.
Shin also said NH Securities will be one of the seven largest securities firms in Korea by 2015, centered around asset management and investment banking to the extent that they will become a global securities firm. NH Futures will try to diversify its income sources by strengthening its retail and overseas operations.
Shin also said NH-CA Asset Management, a joint venture firm with Credit Agricole of France, which is similar to NH Bank, will be developed as a manager of customer risk and income at the same time, not just an asset management firm seeking high profits and avoiding high risks.
NH Capital will take on the lease financing business in addition to installment financing, the chairman said. Na Dong-min has been named to head NH Life Insurance Co. as president; Kim Hak-hyun was selected to head NH Non-Life Insurance Co.; Chung Hi-dong was designated to lead NH Securities as CEO; and Lee Jong-hwan will head NH Asset Management Co. as CEO.

A scene from a ceremony to announce the division of the National Agricultural Cooperative Federation(NH) into two holding companies on March 2 attended by President Lee Myung-bak,5th R.

(from left)? Chairman & CEO Shin Choong-shik of the NH Financial Holding Co. and Chairman Choi Won-byung of NH.