By Kim Jae-kyoung
Staff Reporter
Growth prospects for Korea's banking industry have been less than optimistic due to rising household debt, economic uncertainties, narrowing interest margins and various other factors. But Kookmin Bank, the country's No. 1 bank and largest commercial lender, has so far been unaffected and has retained its leading market position while enjoying significant sustainable growth in 2007.
As of March 2008, the bank's total assets were 245.6 trillion won ($248 billion) with total customers numbering 26 million.
The sheer number of branches spread out nationwide, totalling 1,207, reflects its accessibility and awesome operation network. It also has 102 corporate finance branches and 27 private banking centers throughout Korea.
In late 2005, Kookmin surpassed 2 trillion won in net income and reached 2.47 trillion won the following year, which was by far the highest among Korean financial institutions.
The bank maintained its momentum to reach a net income of 2.77 trillion won by the end of September 2007, setting an industry record for quarterly earnings in the process.
The bank's debt ratings (foreign and local currency) by international agencies are further proof of Kookmin's recent stellar performance in significantly boosting its capitalization and asset quality.
In March, Standard & Poor's raised Kookmin Bank's rating from A- to A, citing improvements in asset quality and solid profits.
In June, Fitch raised the lender's rating to A+ and Moody's followed suit by improving its rating to Aa3 in July.
The government validated the bank's strong performance with a higher rating as well and these upgrades reflect the bank's improving overall credit profile due to the steady asset growth strategy it has employed for the past few years.
Kookmin Bank has also established itself as an industry leader in the field of risk management and has been diligent in its efforts to solidify what was already considered by many to be the nation's premier risk management system.
On Dec. 28, 2007, Kookmin became the first bank in Korea to meet the requirements of the New Basel Capital Accord (Basel II), and received regulatory approval for the use of the internal ratings based (IRB) approach.
At present, Kookmin is the lone domestic bank to be IRB approved, giving it a significant advantage over its competitors in maintaining high asset quality.
Priority placed on customer and shareholder satisfaction has been another key factor in retaining clients and sustaining growth for Kookmin.
In 2006 and 2007, numerous institutes recognized Kookmin's exquisite customer services with ``best in customer satisfaction'' awards.
In 2007, the Korea Productivity Center selected Kookmin as the top provider of customer services for the 2nd consecutive year, and the bank was also ranked first in the Korea Management Association Consultant's customer satisfaction survey, firmly establishing it as not only the largest bank in Korea, but also the friendliest.
Trend-setting financial innovations are another hallmark of Kookmin. The bank launched the world's first IC chip-based mobile banking system in September 2003 and was the first bank in Korea to offer a large variety of funds and bancassurance products.
Procedure-wise, Kookmin incorporated the Segregation of Duties (SOD) system in 2006, and is the sole financial institution to implement the advanced system into its branches.
Mobile banking is a particular strong suit of Kookmin Bank's. Mobile stock trading functions and various supplemental services such as transportation cards, mobile Lotto and foreign exchange were fully available through all major telecom services by 2005, and credit card capabilities and the ability to purchase bancassurance were added to the mobile chip in 2006.
In 2007, Kookmin initiated the standardization of CD/ATMs, which led to a unified mobile banking system adopted by all domestic banks. It also saw the development of the chip-less mobile banking system that uses Certificates for user authentication.
With the continued development of products and services that converge finance with communications technology, including e-currency (currently in development), increased 3rd generation mobile device-based banking services and the expansion of chip-less mobile banking to all telecom services, Kookmin's current domination of the mobile banking market (market share of 45.3% as of end of 2007) will only continue to grow.
Currently, Kookmin is aggressively pursuing foreign expansion and preparing to enter the securities market as a part of the bank's efforts to establish diverse future growth sources.
The bank recognizes that its long-term growth potential lies in offshore markets, and thus will take a number of actions in 2008 to increase its global presence.
To accelerate the bank's overseas expansion projects, CEO Kang Chung-won established a special unit that specializes in strategy development for specific markets and also plans on hiring more regional experts in order to better understand these markets.
In addition, Kookmin has performed feasibility studies in markets such as China, Russia, Kazakhstan and the Ukraine and is in the process of modifying its operational systems and practices to better accommodate global standards.
These are all steps that will enable it to take a major leap toward becoming a global player.
As one of the first significant initiatives, the board of directors approved on March 14, 2008 the acquisition of a 30 percent stake in Kazakhstan's Bank Center Credit (BCC).
The 30 percent stake amounts to approximately 634 million dollar (equivalent to 621.3 billion won) and Kookmin plans on increasing its investment to 50.1 percent, acquiring a controlling stake in the process. Once completed, it will represent the largest foreign M&A ever by a domestic financial institution.
The agreed transfer of core capabilities through management participation will enable BCC to increase scale and improve operational efficiencies, establishing itself as a leading bank not just in Kazakhstan, but across Central Asia as well. Industry experts consider the investment in BCC to be a major step above past forays made by Korean banks into the international market.
Previously, the main functions of foreign branches and offices were to perform supplementary roles to Korean corporations operating in overseas markets but more and more banks are beginning to target the local citizens, and Kookmin is at the forefront of this approach.
In a move to secure competitiveness in the capitol market and generate profit through synergy, it signed a share purchase agreement with Hanuri Securities on November 14, 2007.
Following government approval and necessary due process, the acquisition was finalized on March 11 and KB Investment Securities was officially launched. The bank's massive customer base and operations network, plus the excellent track record of its investment banking division ensures that Kookmin has the necessary tools to be competitive in the securities market.
The bank has made a concerted effort to fortify its internal capabilities over the last 3 years, and with that groundwork in place will continue to build up its future growth perspectives with aggressive business operations that result in profit and asset value maximization, while improving its revenue structure and developing capabilities that meet international standards.
By continuing to strengthen the bank's business model the next three years, Kookmin will lay the foundation essential to maintaining its status as Korea's best and biggest bank for the next decade while bringing to fruition its goal of becoming a ``Global Bank Leading the Asian Financial Market.''
As the first step, Kookmin plans on utilizing its extensive experience in retail banking to firmly establish itself as a total financial services group, trusted and respected by the masses not just for its retail banking but also credit card, asset management, trusts, insurance, securities and investment banking services.