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Hard times ahead for Korean bank
Publication Date : 05-02-2014
KB Financial Group is undergoing possibly one of the worst crises since its inception.
South Korea’s No. 2 banking group suffered a blow that was big enough to threaten its status in 2013 after its flagship unit, KB Kookmin Bank, was rattled by a series of scandals involving illegal loans, embezzlement and irregularities at its overseas branches. The company then got off on the wrong foot this year with a data breach that hit several credit card firms including the one affiliated with KB.
KB Kookmin Card may now have to cough up 86 billion won (US$79 million) in compensation to its clients for the leaks of customers’ personal information.
The card unit, which currently contributes to about 30 per cent of the group’s net profit, has lost more than 280,000 customers in the wake of the massive leaks of customers’ personal information.
Amid the disarray, KB will soon be announcing the results of its 2013 performance, which are likely to be anything but good.
Poor performance and restructuring efforts
Analysts predict that the group’s net profit for 2013 will fall by more than 21 per cent from the previous year to 1.34 trillion won due to a long streak of low interest rates and higher loan-loss reserves.
To cut costs, KB Kookmin Bank closed more than 50 branches in January.
The cutback is in line the views of group chairman and CEO Lim Young-rok, who cited improving cost structure and employee management as one of the company’s two essential goals for this year.
KB has also created a reform committee to provide improved customer services under Lim’s management-shakeup plan.
At the group’s first executive meeting this year, Lim said one of his No. 1 priorities was to regain investor confidence.
This is why, while its rivals Shinhan and Hana group are increasingly looking toward the global market to secure more retail clients, KB is likely to focus on retail banking, analysts said.
Meanwhile, due to the overheating competition, restructuring is inevitable not only for KB, but for other major financial firms as well, according to Gu Bon-Sung, a research fellow at Korea Institute of Finance.
He noted that the government’s plan to privatize Woori Financial Group - the country’s largest banking group - would accelerate competitive pressure between other major financial groups.
“The expected emergence of supersized financial groups through mergers and acquisitions would spur competition among large financial companies,” he said.
“Under these circumstances, domestic financial companies need to explore new areas of business to diversify revenue sources and develop expertise in specialized areas.”
Some market insiders, however, believe there is hope for KB, largely because of its strong, nationwide retail network and a time-honored reputation that remains intact.
In particular, they were skeptical that the government’s penalties for the latest credit card data breach would have a lasting impact on the group’s future business.
“The effect of the disciplinary action from the government will be minimal as limits on new card issuance would be irrelevant as consumers already have too many credit cards,” Joanne Lee, an analyst at Korea Investment and Securities told The Korea Herald.
Lee noted that local card firms, including KB, in fact, have been focusing on increasing the volume of transactions by individuals over the total volume of customers due to a continuing decline in card issuance over the past few years.
Lee also pointed out that debit cards accounted for 75 per cent of total cards issued by September 2013, while credit cards made up the remaining 25 per cent.
She added that KB Card’s transaction volume would remain stable, noting that debit cards are most often linked to bank accounts, and the users don’t usually change their accounts so easily.
Some industry watchers predict banks’ net profit is likely to improve this year as the local economy shows signs of recovery.