KoreaToday KB becoming fitter, quicker with Euh at helm

By Kim Tong-hyung

KB Financial, the huge but boring banking group that had been clobbered by quicker rivals in its main markets, is fighting back. And in calling the shots, fiery KB Chairman Euh Yoon-dae can’t seem to decide whether to let it go the distance or go for the kill.

In one moment, Euh is describing KB as an inefficient and inadequate organization that still has a long way to go before adjusting to the speed of competition. But in the next, he is declaring KB as ready to regain its former glory as the country’s most formidable and lucrative finance company, and in ``ready’’ he means now.

``In terms of net profit, I believe that we can finish the year as the top player in the banking business. It’s plausible to think that our net profit can return to the level it was in 2007 before the global financial crisis,’’ Euh told journalists recently. KB Kookmin Bank, KB’s main business unit, posted 2.77 trillion won (about $2.49 billion) in net profit that year.

Retail banking has been KB’s traditional strength, but Euh is determined to flex a larger muscle in corporate financing, an area he believes will generate a significant part of the company’s growth in the coming years.

``I have met every chairman of the country’s 15 biggest firms aside from Samsung since I became chairman. KB will soon be able to announce the results of our efforts to find new opportunities among big businesses,’’ he said.

Bringing innovation and agility back to a bloated KB would require both patience and boldness. And Euh has displayed both qualities since taking the management helm last July, as he added pace to the group’s rebuilding efforts and rewriting of its business strategies.

KB is currently the country’s second-largest financial group by assets, trailing the state-run Woori Financial. But it has been lagging behind rivals, which also include Shinhan Financial and Hana Financial, due to low profitability and heavy exposure to the deteriorating housing market and struggling small companies.

In pushing forward an aggressive restructuring plan, KB shed more than 3,200 employees from its payroll last year in one of the biggest layoffs the finance industry has ever witnessed. At money-losing affiliates, such as KB Investment and Securities, the number of executive-level personnel was reduced by around 30 percent.

Cutting costs was imperative for KB, which saw its cost-to-income ratio rise to 54 percent in 2009 from 42 percent in 2005. Euh himself took a 15 percent pay cut to set the tone last year, while group President Lim Yong-rok and Kookmin Bank chief executive officer (CEO) Min Byung-duk had their salaries shaved by 10 percent each.

Although KB doesn’t have more layoffs planned for this year, the group recently launched a ``performance improvement department’’ to educate and relocate underperforming employees, which Euh describes as the corporate equivalent to a minor league demotion.

``Even for a star slugger like Lee Seung-yeop, the Yomiuri Giants would send him to their farm team if he struggles to fix his swing before calling him back,’’ Euh said.

KB, which is the country’s No. 2 credit-card provider, is looking to renew its focus on the market as it spins off its credit-card division from Kookmin Bank, with the new company debuting next month. A process is also underway to merge KB Investment and Securities with KB Futures.

KB is also considering ways to reduce the 11.2 percent of treasury shares held by Kookmin Bank, including block sales and share swaps with Korean conglomerates such as POSCO.

The stake sale, worth 2.5 trillion won, would also improve the bank's capital ratio and allow the group to explore more strategic partnerships with investors here and abroad.

Euh’s predominant focus on making KB lean and mean somewhat differs from the tone of the comments he gave when he was first pegged for the chairmanship. It was then when he expressed the desire to create the country’s first ``mega bank’’ and was toying with the possibilities of KB absorbing its bigger rival, Woori.

Seven months into the job, Euh now says that bulking up is not an option when the group is alarmingly overweight and out of shape. He says the group doesn’t have any immediate plans for exploring mergers and acquisition (M&A) opportunities, stressing that improving financial health and efficiency remains as the first priority. However, some observers predict KB getting back into the game once it completes the sale of the Kookmin Bank shares.

``There is a difference between the biggest bank and a leading bank, and we have a clear idea which we want to be,’’ Euh said.

``We had been an overweight, 90-kilogram man, who worked hard to push down the scale to 80. But we still have 10 more kilograms to lose.’’

Another priority for Euh is to add new revenue sources through existing businesses, and expanding its customer pool among larger companies is considered as key. KB, which is already tight with POSCO, is currently exploring a strategic partnership with KT, the local telecommunications giant.

Euh is also disturbed by the fact that KB has been failing to lure younger customers in its retail businesses, and has ambitiously launched a ``youth bank’’ project targeting university students and office workers in their 20s and 30s.

These new type of branches, which KB began opening in university campuses in Seoul, looks more like an Apple gadget shop than a traditional bank, providing a compact space that customers could use as a café and Internet lounge while receiving banking and other financial services tailored for younger customers. KB currently has 42 ``youth bank’’ branches near campuses in Seoul and major provincial cities.