IBK’s aggressive retailing roils rivals

By Kang Seung-woo

Staff reporter

The Industrial Bank of Korea (IBK)'s recent full-strength foray into retail banking operations has drawn complaints from commercial banks.

The banks complain that the state-run lender has failed to take care of its primary goal of supporting small and medium-sized enterprises (SMEs), increasing its penetration into the retail sector, taking advantage of ample liquidity thereby enabling it to offer lower interest rates.

"Government-owned IBK was set up in accordance with the Banking Act of Small- and Medium-sized Enterprises, but it has become more and more commercialized, going against its main purpose," said an official of a commercial bank who requested anonymity.

"We don't approve of IBK's action to aggressively pursue higher penetration into such areas as mortgage loans and private banking rather than support for SMEs.''

The IBK was established in 1961 with an aim to finance small- and medium- sized enterprises. The government directly owns 65.13 percent of the bank's share at present.

However, since CEO Yun Yong-ro took over in December 2007, the former deputy chief of the Financial Supervisory Commission (FSS) has made full-scale efforts to evolve his bank to span other services such as customer-oriented banking, and eventually become a financial holding company.

While maintaining its traditional role and helping to facilitate the nation's economic development, the bank has recently extended the scope of its expertise to provide a comprehensive range of financial services to individual customers in a drive to come up big in the sector.

IBK reduced mortgage rates in January to become the first to do so, forcing others to follow suit.

Besides, it has made loans to employees of Samsung Life Insurance before it conducted an initial public offering (IPO) last month.

In a five-way duel including Woori Bank, Nonghyup, Korea Securities Finance and Shinhan Bank, most of which offer low interest rates of around 4 percent, IBK lured around 2,200 employees of Samsung Life, who took out 316.7 billion won ($253.99 million) in loans with the lowest at a 3 percent rate.

"Despite its increase in total assets last year, I do wonder if it came from loans to SMEs," the bank official said.

According to the Korea Federation of Small and Medium Business last month, IBK posted a 9 trillion won increase in 2009 compared with the previous year in terms of total assets. Few other banks have seen an increase in assets to that volume, while it is widely believed that the increase is by and large accounted for by its heavy retailing business.

Another bank official said the low-rate policy could eventually haunt IBK.

"It is not agreeable," an official of a local lender said on condition of anonymity.

"In the short term, they will profit from a low-interest rate, but it will affect the bank's fiscal soundness and structure in the longer run."

However, IBK said it is a mode of operation to survive in the market.

"It is true that IBK mainly deals with SMEs, but trading with them has more risks," an IBK official said.

"Currently, we have made 70 percent of all loans to SMEs but the regulations call on us to raise the ratio to 80 percent, but it is too lopsided. So we need to revise the portfolio requirements."

"But it does not mean that we plan to cut the loan amount."

He said that IBK is trying to raise capital from household loans in order to distribute it by lending to the SMEs.

He also talked about its low interest policy of household loans.

"As IBK just represents 3 percent of the total mortgage loan markets, thus we have to offer a competitive rate as a latecomer to appeal to customers," he said, when asked why it is offering a lower rate than other commercial banks.