Era of big 4 financial groups
Business Focus conducted written interviews with chairmen of big four financial groups to hear their plans and strategies after Hana’s takeover of Korea Exchange Bank. The following discussion has been reconstituted based on separate interviews, which were conducted from Jan. 31 to Feb. 6. ? ED.
By Kim Jae-kyoung
The chairmen of four financial groups ? KB, Woori, Shinhan and Hana ? all agree that Hana’s takeover of Korea Exchange Bank (KEB) will reshape the domestic financial industry. They said that competition used to be focused on the banking sector but now it has turned into group-to-group rivalry.
Except for Hana Financial Group Chairman Kim Seung-yu, the three other CEOs ? KB Chairman Euh Yoon-dae, Woori Chairman Lee Pal-seung and Shinhan Chairman Han Dong-woo ? do not take the move seriously, saying that it has been widely expected and has already been factored into their business strategies for this year.
They all shared the view that 2012 will be an important year to reinvent business models and develop new growth engines to take the lead in the rapidly-changing environment.
The following are excerpts from the interviews:
Q: What is the implication of Hana’s takeover of KEB for your organization?
Hana Chairman Kim Seung-yu (Kim): The move will help us diversify our business portfolio and we will emerge as a leader in a couple of areas, such as private banking and foreign exchange. Also, we will take advantage of economies of scale and have better capabilities to deal with external risks. Furthermore, we expect to improve international competitiveness by capitalizing on KEB’s strong overseas networks.
KB Chairman Euh Yoon-dae (Euh): I think there will be more intense competition among the four groups to maintain and attract customers because they are now very similar in many aspects. But it will take two to three years for Hana to create synergy and compete with the other three.
Shinhan Chairman Han Dong-woo (Han): There will be a ranking change in terms of asset size but it doesn’t mean much. I think that the focus of competition will move from banks to groups. Since we also see some opportunities created by the takeover, we will continue to strengthen our differentiated strategies.
Woori Chairman Lee Pal-seung (Lee): I think that the takeover will create synergy because they have strengths in different areas. In order to cope with the uphill competition, we will offer group-wide, one-stop financial solutions. Also, we will speed up our globalization to move beyond the domestic market.
Q: Do you have any plans on M&A?
Lee: In order to strengthen the non-banking sector and diversify revenue sources, we are looking for M&A opportunities in insurance and asset management.
Han: I think we need to further beef up our non-banking division to diversity our business portfolio but we have no M&A plans at this moment.
Kim: We are open to any M&A possibility as long as it is considered an opportunity. I think that there will be many M&A activities in the non-banking sector, such as insurance and securities.
Q: What areas are you focusing on in the coming years?
Kim: First of all, we will place top priority on creating synergy between Hana and KEB through successful integration. To that end, we will maintain a two-bank system for a while to take advantage of KEB’s strengths in corporate banking and trade financing. We will keep KEB’s brand.
Lee: I will focus on enhancing our revenue base by expanding net interest margins and non-interest income while shoring up non-banking sectors, such as insurance, asset management and savings banks. At the same time, we will seek to increase our presence abroad by strengthening overseas networks in Brazil and India.
Han: First, I will make further efforts to improve our adaptability to external changes by improving internal capabilities. Second, we will focus on developing the corporate investment banking (CIB) and wealth management (WM) businesses that have recently been introduced. Finally, smart financing is also one of the top priorities on my to-do list.
Euh: Given that uncertainties are still lingering, our top priority is placed on improving internal capabilities and maximizing profitability.
Q: What kind of corporate governance structure do you think is good for your organization ? existing structure, matrix or hybrid?
Han: I think a hybrid matrix structure is the ideal one. Our CIB and WM model is a typical example. It combines Shinhan’s model with the matrix. I expect the hybrid structure will help offer more comprehensive, customer-tailored services.
Lee: It is difficult to adopt a westernized matrix structure as it is, given our corporate-centered business practice and a lack of legal and regulatory systems. However, with customers’ highly sophisticated needs, there is growing demand for integrated customer-centered financial services. In this regard, we need a compromise model to satisfy both needs.
Kim: Matrix. We will continue to maintain a matrix scheme as a customer-centered group management system even after the takeover. But it is inevitable to modify it as we will run a two-bank system for the time being. We are now studying a couple of foreign models, such as Japan’s Mizuho Financial Group and Spain’s Santander.
Euh: KB will not adopt a matrix scheme. The system has its merits because it is effective in securing consistency in group management. But it can cause organizational disruptions because it can blur rights and responsibilities. We will stick to the existing system and form a taskforce in corporate banking and CIB when necessary.
Q: What is your ideal business model?
Euh: We have so far focused on beefing up the non-banking sector based on our customer base and sales channels to create synergy. But we will seek to provide a universal banking service by improving capabilities in credit cards, securities, insurance and asset management. We plan to increase the portion of revenue from the non-banking sector to 30 percent by 2013.
Han: I want to create a financial group not only to create profits for shareholders but also to create values for all stakeholders in society. Shinhan’s new initiative, dubbed “warm-hearted financing,” is the beginning of such a move.
Lee: What’s in my mind is a balanced financial group. I want to make Woori a financial group that maintains a balance between banking and non-banking, domestic and overseas markets, and retail and corporate banking.
Kim: My ideal model is a one-stop banking service that meets all customers’ needs.
Q: What is top of your agenda during your tenure?
Euh: We will focus on boosting management efficiency through cost reduction and the development of differentiated products. In particular, we are trying to develop a one-stop real estate investment service for wealthy customers who have a special interest in residential premises and mid-size commercial properties.
Lee: I am placing a top priority on privatization. Also, I would like to lay the groundwork to transform Woori into a global financial group by boosting efficiency and productivity through innovation.
Han: First of all, I would like to make Shinhan the number one company in risk management so that it can secure the capability to overcome external shocks. Second, I want to change our image into a warm-hearted financial group seeking to create value for society while doing business.
Kim: I want to make Hana the country’s leading financial group first. Then I will seek to make Hana join the league of the world’s top 50 financial groups.