Shinhan’s Strategy to Cut Risk Pays Off in Crisis
This is the fifth in a six-part series of articles on the rise and fall of economic and business empires following the global financial crisis triggered by the bankruptcy of Lehman Brothers ― ED.
By Yoon Ja-young
When Shinhan Bank was launched in 1982 as the first bank wholly funded by the private sector, with seed money from the Korean-Japanese community, few people imagined it would achieve such huge success.
Shinhan became the choice for financially-prudent people, and it successfully survived the Asian financial crisis in 1997, while decades-old giants faltered as restructuring swept the financial industry.
The bank has solidified its ground in the financial industry as the country's key bank, standing firm amid the global financial crisis that shook the world last year.
The bank marked an earnings surprise in the third quarter, posting earnings of 288.8 billion won, up 43 percent from the previous quarter. Its interest income grew by 13.7 percent after quickly improving its net interest margin.
Risk Management Key to Success
Like the few other global players that survived the crisis, the bank said risk management was its key factor for success. Since its foundation, Shinhan Bank has believed that risk management should be the essence of the banking industry.
It adopted the risk management systems of financial businesses in developed countries from early on, while most other Korean banks were being managed without such principles. It introduced PC banking in 1991, phone banking services in 1994, and Internet banking in 1999.
"We are still careful, as uncertainties linger in the financial market," a Shinhan spokesperson said.
Asked how Shinhan fared better than other banks during the global economic turmoil, he explained that Shinhan learned its lesson from the rise and fall of Rome and Venezia.
Shinhan Bank employees study the history of these ancient countries ― how they rose and faltered. The examples are often cited in speeches of Shinhan executives.
Rome, which started as a small tribal country, rose to become a powerful empire thanks to its openness to other cultures and ability to be flexible.
Venezia also had a humble start, but rose as one of the strongest marine countries in history thanks to its no-fear attitude and ability to cooperate. The merchant country actively opened up markets overseas, and enjoyed prosperity for a millennium.
"We learned that a financial crisis can come at any time. So we never forgot what we learned during the Asian financial crisis. Organizations need to adapt to change while keeping their core values. They should be open and should not fear innovation," the spokesperson said.
The lesson Shinhan learned was that financial health and risk management should be the basic fundamentals of the banking industry. It became the corporate culture of Shinhan Bank, and the culture has been handed down to its young employees from their predecessors.
Shinhan Bank CEO Lee Baek-soon reiterated the principles of the bank upon his inauguration last March. The bank has been thorough in asset management, and is continuing careful monitoring of loans.
The bank also runs a market monitoring committee, where all its executives and managers gather for candid communication with one another each week. Also, its emergency council system enables all staff members to share core information without delay, even amid a crisis.
This has become Shinhan's corporate culture, helping the bank minimize losses during the unprecedented crisis and even seek new business opportunities.
Prepare for the Sun While It Rains
The crisis made banks realize that they should get stronger to survive the growing uncertainties in the financial market. Shinhan Bank has been making efforts to be able to withstand any difficulties that can come, even before a crisis occurs.
Few players in the market, however, are preparing for an economic recovery. A Shinhan spokesperson said the bank is preparing for the sun even while it is still raining.
The bank set up three core tasks: "creating value for customers," creating a "stable income structure" and establishing a "long-term growth engine."
Most of all, the bank aims to adapt to changes in the banking industry. It is also focusing on regaining customer confidence. Shinhan Bank noted that customers lost trust in the banking industry amid the financial turmoil..
Of course, preparing for the good days doesn't mean the bank will pay less attention to financial health. A Shinhan Bank spokesperson said managing financial health is always its number one priority. "The growth in number isn't everything. The growth should be sincere," he said.
Preparing for the future also includes the bank's search for new business opportunities. It is paying particular attention to green financing and other government driven projects, looking for ways to link them with financial sectors such as investment banking.
Globalization is another keyword for Shinhan Bank.
"We should not be confined to the small local market anymore," the CEO said at a monthly meeting with employees in September.
The bank chose Japan, the United States, China and Vietnam as its key destinations. It launched Shinhan Bank Japan in September, becoming the first non-Japanese Asian player to advance into the market. It has been successful so far ― over 1,000 Japanese customers opened up accounts in just five days. The bank plans to increase its number of Japanese branches to six by early next year.
It also plans to open more branches in Vietnam, and currently has ten branches in China.