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[KH Explain] KB's chair candidate hopes to break out of pod
Yang Jong-hee's leadership to be tested with outcome of KB's ongoing expansion efforts in Southeast AsiaBy Song Seung-hyun
Published : Sept. 18, 2023 - 13:40
KB Financial Group is often referred to as a "big fish in a small pond," given its position as Korea's largest financial holding firm with a weak global presence. The group's new chairman candidate, Yang Jong-hee, aims to change this.
According to KB, Yang’s global expansion plan focuses on two key areas: Normalizing KB's money-losing Indonesian subsidiary, Bank KB Bukopin, and further strengthening KB's Cambodian unit, KB Prasac Bank, which is already doing well.
The proportion of KB Financial Group's earnings from foreign markets lagged behind those of its domestic rivals in 2022, accounting for just 11 percent of the group’s overall net profit share.
Hana Financial Group had the highest global net profit share, at 19.5 percent, followed by Woori Financial Group (14.3 percent) and Shinhan Financial Group (12.2 percent).
When measured against global corporations, the disparity becomes even more evident. For instance, Japan's Mitsubishi UFJ Financial Group boasts a 57 percent share of global net profit, and Sumitomo Mitsui Financial Group has 56 percent.
Yang, who has experience in overseeing the group's overall overseas business, is taking the slow rate of expansion seriously.
KB’s goal is to expand its net profit share of its overseas operations to 30 percent by 2030 and 40 percent by 2040.
To reach this goal, the group has set its sights on the normalization of its Indonesian unit as a pivotal first step.
"Apart from Bank KB Bukopin, we have units like KB Prasac Bank that continue to generate profits. Therefore, as we work toward stabilizing the Bukopin unit, we will be able to compete on par with, or even surpass, other local financial institutions," said a senior official from KB Financial.
KB Kookmin Bank's Indonesian unit logged a net loss of $ 507 million last year, its largest since its acquisition in 2018. The downturn dragged on the bank's overall overseas earnings, even as its Cambodian subsidiary reported a net profit of $297 million, increasing by 2.4 percent on-year, during the same period.
As a result, the lender's overseas net profit fell 14.9 percent on-year to $991 million.
Fortunately for KB, local analysts are painting an optimistic outlook for the future of Bank KB Bukopin as the group strives to revive the unit.
"During the fourth quarter of last year, the group secured a bad debt provision of approximately 580 billion won for Indonesia's Bukopin Bank. This proactive and conservative bad debt provision positions them to offset potential future losses,” said Choi Jung-wook, an analyst at Hana Securities.
“During the second quarter, Kookmin Bank completed a 709 billion won paid-in capital increase for its Indonesian unit and enhanced its capacity to cover losses through securing bad debt provisions. It also expanded investments in the digital sector and recovered sales capability,” Korea Investment and Securities analyst Baek Doo-san said.
“Considering these changes, the possibility of a large-scale additional paid-in capital increase for KB Bukopin Bank in the future has decreased," he added.
KB Prasac Bank is another key pillar of the group's global business, according to the KB official.
"It is why our chairman candidate is attentive to further expanding our operations in Cambodia," the official added.
In 2020, KB acquired a 70 percent stake in Prasac Microfinance Institution and purchased the remaining 30 percent in the latter half of 2021.
Recently in July, KB Kookmin Bank merged its two affiliates there -- Prasac Microfinance Institution and Kookmin Bank Cambodia.
KB’s plan is to grow this unit into the top lender in Cambodia.
As of the end of last year, KB's Cambodian unit was the second most profitable among all financial institutions in Cambodia. It reported a total revenue of 2.5 trillion riels ($609.36 million) and a profit after tax amounting to 740.87 billion riels.
The unit in Cambodia also secured fourth place in terms of assets among all financial institutions in Cambodia, with assets exceeding 19.75 trillion riels.
Currently, ABA Bank is Cambodia's largest commercial bank. As of December 2022, the top bank managed $9 billion in total assets.
In addition to its ongoing expansion efforts in Southeast Asian markets, the KB official emphasized that it will maintain its two-pronged strategy under the leadership of Yang.
This means it will also further extend its reach into advanced markets.
"In advanced markets such as the US, our strategy centers on securing stable growth drivers for our group's portfolio and acquiring global capabilities in wealth management, corporate and investment banking, as well as asset management markets," the group official said.
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