NongHyup group's bank reliance poses challenge

NongHyup Financial Group Chairman Kim Gwang-soo / Korea Times file

By Kim Bo-eun

NongHyup Financial Group's rapid growth driven by its flagship NongHyup Bank has emerged as a double-edged sword as its weak non-banking affiliates are posing a challenge for the group's growth amid a toughening environment for banks.

NongHyup Bank's earnings accounted for 85.5 percent of the group's total for the third quarter of last year. This compares with Shinhan and KB's ratio, which stood at 66 percent and 68.5 percent, respectively in the same period.

NongHyup's bank and brokerage units' earnings grew, but the rest of the group's affiliates showed a poor performance in the same period. NH Capital's net profit stood at 41.6 billion won, a 3 percent fall year-on-year. NongHyup Life Insurance's net profit came in at 24.7 billion won, a 7.8 percent fall year-on-year.

The group's reliance on its bank unit makes it vulnerable to unfavorable circumstances for banks amid low interest rates.

Amid such circumstances, major local banking groups are gearing up to strengthen their non-banking affiliates to make them new engines for growth.

Group Chairman Kim Gwang-soo pledged to strengthen non-banking units as well as boost non-interest income.

"We need to create a balance between banking and non-banking affiliates as currently earnings mainly come from the bank's interest income," Kim said in his New Year address.

"In order to do so, we first need to boost the competitiveness of non-interest businesses and non-banking affiliates," he said.

NongHyup appears to be seeking to achieve this through expanding the overseas business of its non-banking units, specifically in the form of joint ventures in Southeast Asia.

Kim stated plans for the group to expand its global network through creating bases in regions that have high growth potential or enable cooperation with NongHyup partners.

The chairman visited India last week to sign an agreement for NongHyup Capital's acquisition of local capital firm Kisan Finance's shares, under NongHyup Financial Group's joint venture with the Indian Farmers Fertilizer Cooperative.

This is NongHyup Capital's second overseas expansion effort, after a joint venture with a Chinese firm in 2017.

NongHyup group's bank, brokerage and capital firm currently have 16 outlets in 10 countries.

NongHyup Investment & Securities has the largest number of overseas outlets, with six subsidiaries and two offices.

It established its first subsidiary in New York in 1993 and before setting up in Hong Kong, Singapore, Indonesia, Vietnam and Beijing. The brokerage unit has offices in Shanghai and London.

The group also said it would strengthen NH-Amundi Asset Management's overseas investment, through enabling access to the Paris-based Amundi Asset Management's training programs. Amundi is NH-Amundi's second largest shareholder.