Kookmin Emerges Unscarred From Global Crisis
By Lee Hyo-sik
Despite a setback brought on by the collapse of Lehman Brothers a year ago, Kookmin Bank (KB) has quickly recovered from the worldwide financial mess and further solidified its position as Korea's largest retail lender, thanks to its preemptive risk management and strong leadership.
The biggest commercial bank here in both asset value and market capitalization has largely emerged unscarred from the global financial turmoil and the subsequent economic slump as the stringent restructuring in the aftermath of the 1997-98 Asian financial crisis improved its financial soundness, helping it better cope with the global credit crunch.
It was originally established in 1963 and through a merger with the Housing & Commercial Bank in 2001, has grown into a financial entity with 280 trillion won assets under management and 26 million customers.
``Unlike U.S. and European financial institutions that were hit hard by the international financial market debacle, Kookmin was dealing well with their high level of foreign short-term debts and other difficulties through the strengthening of the risk management and the downsizing. Even before the crisis, we made every effort to cut bad loans and beef up our capital base,'' CEO Kang Chung-won said.
He said the bank has further enhanced its position as a leading lender here in the post-crisis era, adding it will become a leader in Asia and beyond through the sustainable growth by improving its risk management and bottom line.
Kookmin outlined three factors behind its recent success ― promotion of core values, reform and innovation and CEO Kang's human-oriented management.
First, the bank has reestablished its corporate vision and value system based on its traditions to achieve a sustainable growth for years to come and emerge as an Asia's global bank.
Kookmin has placed top priorities on providing the best-quality services to customers, setting up advanced financial and management systems and nurturing talented manpower.
In order to leap forward, the lender continues to purse reforming and innovating itself to dictate the future course of Korea's financial industry. Over the years, it has focused on improving its internal processes and the quality of its financial products and services. But it is now seeking to adopt and practice global management standards to maintain its dominant status in the domestic sector and set up footholds overseas.
CEO Kang's management style is another crucial factor behind its successful overcoming of the global crisis. He has been promoting the adoption of internationally best practices by overhauling the corporate culture and the organizational structure.
Additionally, to take advantage of the recent collapse of the global financial system and become a leading global player, Kang has encouraged bank employees to work in a ``honest, precise, swift and customer-friendly'' manner.
``If we do not offer more efficient and convenient financial services to customers than our competitors, we will soon lose our leading bank status. The most important thing is to enhance customer satisfaction, meaning all employees should make an all-out effort to turn themselves more consumers friendly,'' Kang stressed.
The bank topped the Korea Customer Satisfaction Index (KCSI) of the Korea Productivity Center in 2009 for the third consecutive year. Consulting firm Hewitt Associate named Kookmin this year's best workplace for the second straight years, citing high worker satisfaction and worker friendly environment.
``We should become a `big, fast, flexible' bank. It is only possible when all Kookmin family members are equipped with innovative mindsets and creative attitude. To further boost customer value, we should continue to make efforts to offer the high-quality and differentiated financial products and services at low costs,'' Kang said.
``The bank plans to come out with a long-term roadmap to produce the globally talented and competitive workforce, while promoting `green finance.' We will also continue to help small firms and low-income brackets receive necessary financial services and fulfill our corporate social responsibility,'' the CEO stressed.
With an increasingly saturated domestic financial sector, KB also plans to make an inroad into foreign countries to find new sources of growth. In particular, it is trying to build an extensive business network in China, Southeast and Central Asia, dubbed ```KB Triangle Network.''
Among others, the bank recently decided to team up with the International Finance Corp. (IFC) to acquire a controlling stake in Kazakhstan's Bank Center Credit (BCC). Under the joint investment plan, IFC and Kookmin will purchase a 19.6 percent stake in BCC through additional stock purchases or new share offerings ― 10 percent for IFC and 9.6 percent for Kookmin, which will increase the two's combined stake holding to 50.01 percent.
At the same time, as a leading entity under the Kookmin Financial Group, the bank will increase cooperation with other units and create positive synergy effects to emerge a universal financial group in Asia.
Improving Financial Soundness, Profitability
Kookmin's financial soundness and profitability worsened sharply, hit hard by the international financial market debacle and the economic slump late last year, because of surging non-performing loans and investment losses. But on the easing of the credit squeeze and improving economic conditions in the second quarter of the year, the bank has begun performing better.
Its loan default rate dropped to 0.84 percent in the second quarter and further to 0.8 percent in the third quarter from 1.05 percent in the January to March period. Its capital adequacy ratio under the Bank of International Settlement (BIS) stood at 13.85 percent as of the end of September, up from 13.16 percent in March and 13.65 percent in June.
On top of improving financial soundness, its earnings have shown an upward curve this year. Its net profit rose 1.5 percent to 231.2 billion won in the third quarter from the previous three month period, with its net interest margin jumping to 2.2 percent from 1.8 percent.
Kookmin shares have also headed upward sharply this year on its bullish performance and improving overall financial market conditions. Share prices averaged 60,500 won in September, up from 32,950 won in March and 42,800 won in June.
The bank plans to continue to slash non-performing loans and default ratios by boosting earnings from non-interest margin businesses, while securing dollars and other foreign currencies through the issuance of bonds overseas.
``We expect a better performance for the remainder of the year and next year on the back of the ongoing economic rebound and improved borrowing conditions abroad. But we will remain vigilant for the foreseeable future and make more efforts to cut costs and boost our financial soundness in preparation for a possible global double-dip,'' CEO Kang said.
Supporting Small Firms, Low-Income Family
To become a responsible corporate citizen and back the government policies of supporting small business and low-income earners, Kookmin has and will continue to extend cheap credits to those who have difficulty in borrowing necessary funds.
Among other things, it will advance into a microcredit business through raising a total of 30 billion won. The bank will support scale credit loans for basic livelihood security recipients, small business owners with inconsistent incomes, and workers who have quit their jobs. Such a move is the bank's latest efforts to contribute in social activities via aiding those financially alienated brackets with a credit grade 9 or 10 to borrow money from financial institutes.
The bank plans to lend a maximum of 10 million won and 5 million won for start-up business or operating funds and livelihood funds, respectively.
Additionally, Kookmin has decided to step up efforts to help struggling firms that have become unable to service debt payments due to snowballing interest caused by the sharp depreciation of the local currency and rising certificate of deposit (CD) rates. CEO Kang and other executives have visited small enterprises on a regular basis to hear about their difficulties.
The lender has been rolling over maturing loans for companies and has quickened its lending procedure by allowing branch managers to make arbitrary decisions over the extension of secured loans.
For instance, in cooperation with the Korean Federation of Credit Guarantee Foundations in January, the lender introduced a special loan program for small business owners to help them tide over the economic turmoil. Under the program, they were able to borrow up to 50 million won.
In April, it also signed a contract with the federation of credit guarantee foundations and Seoul City Credit to establish the electric guarantee system in cooperation with 14 regional foundations.
``We have made the utmost efforts to help local small businesses overcome the economic crisis over the past year. We will continue our efforts to develop various products and programs for companies to enable them to play a role in reviving the economy,'' Kang said.
Fostering Green Management
Kookmin has been taking the lead in local financial firms' green drive by launching a green finance taskforce and introducing a wide variety of environment-friendly financial products. It was designed ont only to support the government's vision to transform the country into a green economic power but also to get upper hand in the rapidly-growing area both at home and abroad.
In order to nurture green finance more systematically, the lender launched a taskforce called ``Green Finance Management Team'' headed by Kang in February. In addition, the bank formed a green finance consultation committee consisting of all executives to secure consistency.
Most recently, Kookmin started selling ``green bike insurance'' in June in line with the government's plan to nurture the local bicycle industry. The product, developed by Samsung Fire and Marine Insurance, is designed to cover policyholders from any damage from accidents or theft.
Kookmin allocated a large amount of money for investment in low-carbon growth industry, while launching green financial products with prime interest rates. The lender signed a contract with Kibo Technology Fund to provide 750 billion won in loans for companies doing eco-friendly businesses. Under the contract, Kibo guarantees loans offered to green companies.
The lender introduced ``Green Growth Time Deposit,'' which donates one percent of interest payments to green organizations. It is also offering the ``KB Green Growth Loan,'' offering favorable interest rates for green industries and it donates 0.5 percent of lending interest to the development of green growth.
It also developed a new type of savings product dubbed ``Business Preferential Installment Savings,'' which offers an additional 0.3 percentage points in interest for enterprises seeking ``low carbon, green growth.'' It established a 330-billion-won ``Renewable Energy Private Equity Fund'' with the government.
The bank is also applying the green growth concept to its management. Executives and staff use bicycles to move to other buildings for meetings in a move to save energy and reduce air pollution. In February, the lender also replaced lights at its headquarters and some major branches with energy efficient LED (light-emitting diodes) lights.