By Kang Seung-woo
Since his debut as the financial group’s head last month, Euh Yoon-dae, chairman of KB Financial Group, has stressed organizational reform at the firm, in order to fix its balance sheets and improve productivity.
For the last decade, KB had kept the top spot in the local financial market in terms of profitability, but lost out to rivals Woori Financial Group and Shinhan Financial Group last year, hit hard by the global financial crisis.
In a bid to reclaim its former glory, Euh has spearheaded the group’s reform drive to reduce costs and increase profits, and it is on full display now, with a 90-man taskforce, set up late last month, in operation.
The latest move was to overhaul the group’s compensation system. To that end, it plans to fix its key performance indicator (KPI) as KB, the largest financial group by assets, has recently ordered its subsidiaries to come up with reform measures. KPI is a quantifiable measurement that reflects the critical success factors of an organization.
The move came after Euh recently noted that despite the recent poor showings of Kookmin Bank, the flagship of the financial holding company, its branches have earned fat performance-related bonuses. Euh said in a workshop Friday that he will fix the system because it is not right to pay out bonuses when performance is poor.
Kookmin’s net profit dropped to 635.8 billion won last year, down from 875 billion won ($739.38 million) in 2008, but more than 80 percent of its branches received bonus payments.
Despite the most extensive network of branches and the largest customer base ― 1,200 and 26 million respectively ― Kookmin has not played up to its billing as the largest lender in terms of labor productivity.
At the end of March, per capita profit at Kookmin stood at 20.17 million won, less than half of that of main rival Shinhan Bank, which generated 45.6 million won. Woori Bank was at 30.8 million won, while Hana Bank posted 32.27 million won.
Worse, in the second quarter of 2010, KB, which had been rudderless for ninth months before Euh took office, swung to a net loss of 335 billion won, a steep fall from 572.7 billion won in profits three months earlier after putting aside approximately 1.5 trillion won in loan-loss reserves to finance corporate restructuring and the sluggish property market, up 1 trillion won compared to the previous quarter. Kookmin also showed a deficit of 346.8 billion won, the first loss since the fourth quarter of 2004.
KB’s cost-to-income ratio (CIR), a barometer for a bank’s efficiency, worsened from 42 percent in 2005 to 54 percent in 2009.
As part of improving the CIR, Euh slashed his pay by 15 percent, which was what he had said in his inauguration.
The new chairman’s pay cut was followed by that of other executives.
Kookmin Bank CEO Min Byong-deok and KB Finance CEO Lim Young-rok cut their salaries by 10 percent apiece and others from the bank and other subsidiaries also saw pay reductions of up to 10 percent.
“Since the voluntary pay cut by Euh, other executives have joined the move to reduce costs,” an official of KB Finance said.
Euh, 65, has made efforts to improve profitability by appointing sales-savvy Min as the bank’s CEO.
The bank suffered a loss of at least 530 billion won from its investment in its overseas issuance of covered bonds last year and the acquisition of Kazakhstan’s Bank CenterCredit (BCC) in 2008, which resulted in former CEO Kang Chung-won being slapped with a severe disciplinary warning.
The 56-year-old, who joined the bank in 1981, has accumulated expertise in sales, after working in various areas, such as consumer, corporate and private banking.
KB also plans to spin off its credit card business.
The bank’s net interest margin ― an indicator of profitability ― was 2.69 percent in the second half, but other than the credit card business, it was estimated to manage to reach 2 percent.
The group said it plans to set up a credit card unit in the first quarter of 2011.