New KB chief has to juggle many priorities

By Choi Kyong-ae

Yoon Jong-kyoo

The real test for Yoon Jong-kyoo as leader of KB Financial Group will be whether he is capable of securing stable profits by implementing diversification within it, economists said Thursday.

“For now, regaining consumer confidence and seeking unity among employees seems to be the most urgent duty for a new chairman to focus on. But he has to come up with plans and products that could bolster profits and compete with global banks,” said Hyundai Research Institute President Ha Tae-hyung.

KB has been criticized in the past decade for executives sent by the government and power struggles between them. Their lack of interest in business has continued to weaken KB’s competitiveness.

Korean banks have fallen far behind their multinational peers when it comes to asset management and other non-banking businesses. They still rely heavily on the domestic retail banking market which is almost saturated, said Kim Ki-hwan, chairman of the non-profit think tank Seoul Financial Forum (SFF).

Kim’s view was echoed by Ha: “Conglomerates that run hefty cash reserves don’t have to borrow money from banks. The demand for additional household loans is in decline because the government’s stimulus measures have sent some of the loan seekers to banks.”

Given this, KB’s new chairman has to develop capabilities in international business. For instance, he needs to introduce new products in order to attract corporate customers and look overseas for new business opportunities, Ha said.

Korean banks earned only 7.6 percent of their total revenue from overseas operations in 2012. This is in sharp contrast to major global banks which make about 50 percent of their earnings outside their home markets, according to SFF data.

Korea’s belated push to become a major won-yuan direct exchange market clearly shows that the Korean financial sector was not quick to recognize a new growth engine, Kim pointed out.

As saturation and competition further weigh on the bottom line of banks in Korea, a total of 31 foreign financial firms such as Goldman Sachs Asset Management and HSBC’s retail banking division withdrew from Korea or reduced their presence here in the 10 years through 2013, the data showed.

On Wednesday, KB Financial picked Yoon as the final candidate for its chairman position to regain consumer confidence and shift the gravity to business from power struggles that have hurt the bank in the past decade.

Yoon beat three competitors ― Citibank Korea Chief Executive Ha Yung-ku, former KB Kookmin Bank Senior Executive Vice President Kim Ki-hong and former KB Kookmin Card Vice President Ji Dong-hyun.

On Thursday, a day after Yoon’s selection, KB Financial ended up by 1.6 percent at 39,100 won. The broader KOSPI fell 0.3 percent to 1931.65.

On the issue of a new chairman also serving as chief of KB Kookmin Bank, economists said that it does make sense for the current KB Financial hit, which has been hit hard by internal conflicts among top executives.

“KB Financial is still a small bank in the global banking market. Under a single leadership, it has to grow further in terms of size to compete with global banks,” Kim said.

Affected by internal disputes, KB Financial’s net interest margin fell 0.22 percentage point to 2.47 percent in the January-June period from 2.69 percent a year ago. The former KB Financial Chairman Lim Young-rok and the former KB Kookmin Bank President Lee Kun-ho stepped down last month following penalties from the financial authorities for mismanagement and lack of control.

Yoon, 59, began his banking career at the Korea Exchange Bank in 1973. He worked for consulting firm Samil PricewaterhouseCoopers for more than two decades through 2002, before working for KB for seven years until 2013. He studied business administration at Sungkyunkwan University.