Banking groups brace for ‘Ice Age’

Financial CEOs to focus on risk management

Euh Yoon-dae
KB Financial chairman

Chief executives of financial companies vowed Wednesday to tackle the challenges of low economic growth and declining interest rates.

Describing the 2013 financial industry as an “Ice Age,” heads of the nation’s four largest financial groups ― Woori, KB, Hana and Shinhan ― picked “risk management” and “securing new revenue sources as key tasks for weathering crises in 2013.

“We are facing the Ice Age of the financial industry, stemming from low growth and profits. It is worse than the 1997 Asian financial crisis and the global financial crisis in 2008, which hit the industry hard,” said Woori Financial Group Chairman Lee Pal-seung in his New Year message.

Lee Pal-seung
Woori Financial chairman

Big financial groups suffered from weaker bottom lines last year as low interest rates, driven by the central bank’s easing cycle, have begun to squeeze net interest margins, a gauge of profitability. The combined net income of the four groups is expected to reach 7.32 trillion won ($6.88 billion) in 2013, down some 9.5 percent from last year’s estimate, according to local financial information provider FnGuide.

Lee said that his group needs to increase its competiveness by creating a synergy effect among its 11 affiliates, including banks, brokerages and insurers. Woori has led the industry by assets but analysts say its profitability lags behind KB, Hana and Shinhan.

Han Dong-woo
Shinhan Financial chairman

Euh Yoon-dae, chairman of KB Financial Group, emphasized the importance of risk management as lenders face possible defaults from huge household debt.

“Even if profitability is good, failure to strengthen risk management could jeopardize the group as a whole in a moment,” said Euh in his New Year message.

“We need to strengthen risk management in a bid to preemptively tackle household debt problems and uncertainties in the financial markets.”

The economist-turned-banker urged employees to increase competitiveness in its key businesses, such as retail banking, pensions and debit cards to survive in the cutthroat competition. He also put emphasis on expanding new growth engines of smart banking and real estate services.

Kim Jung-tai
Hana Financial chairman

Euh added he feels sorry about failing to strike an acquisition deal for ING Life’s Korean unit last year, which he believes could be a turning point for the group.

“We tried to diversify banking-focused revenue sources and lower management risks but failed to do so. I think this is part of the company’s growing pains.”

Hana Financial Group Chairman Kim Jung-tai said he will establish a quick decision-making system to cope with rapidly changing business circumstances.

“We should tackle new challenges actively and quickly with new organizations and systems,” said Kim in his first address of the year.

The lifelong banker also emphasized risk management as one of the core parts of financial business. “We should analyze and examine risks every day at this tough time.”

Shinhan Financial Group Chairman Han Dong-woo asked employees to learn from Norwegian explorer Roald Amundsen, who reached the North Pole for the first time a century ago.

“Amundsen overcame very dangerous and uncertain circumstances while exploring the North Pole by means of thorough analysis and being well prepared. He was physically fit and developed his ability to ski through training, and learned all the know-how necessary to explore the North Pole from Eskimos.”

Han said that the company faces difficult situations and urged employees to master their skills and analyze possible risks to brace for new challenges.

Starting this year, tougher bank capital rules, called Basel III, will be applied to Korean lenders. Local banks’ capital strength is largely above the tougher required rules but the stringent regulations are likely to weigh on them because they have to hold more liquid and sound assets for rainy days, according to analysts.

In a recent report, the Financial Supervisory Service warned that banks’ profits may tumble 83.5 percent by 2017 compared to 2012 should Korea’s economic growth rate drop to the 1 percent range and if interest rates decline 1 percentage point from the current level. <The Korea Times/Kim Jae-won>