Upgraded Credit Ratings Reflect Financial-Sector Stability
| Korea’s financial sector has been successfully liberalized over the past decade and now includes a diverse commercial banking system with both domestic and foreign banks, as well as a wide range of secondary financial institutions and a securities market. As part of the country’s overall focus on increased globalization, domestic commercial banks have been diversifying their overseas networks, while branches of foreign banks have been placed on an equal footing with domestic banks. |
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ollowing the Asian financial crisis, South Korea successfully reduced its debt to equity ratios, reduced its foreign borrowing, and more closely regulated its financial sector, resulting in a stronger economy.
Kim Jin-Pyo, South Korea’s Deputy Prime Minister and Minister of Finance and Economy, has stated that South Korea aims to become even more attractive to foreign investors through a three-part program that involves increased economic stability, continued reforms, and coherent long-term policies.
While turbulence in the US stock market, oil prices and other factors have reacted negatively on the economy in recent months, the Bank of Korea, the country’s central bank, has developed strong measures to counteract this trend, and will focus on maintaining the stability of financial markets. After the early completion of repayments to the International Monetary Fund in August 2001, foreign reserves are now at a level that provides substantial insulation against shocks.
Reflecting the country’s macroeconomic strength, Korea’s sovereign credit rating was returned to pre-crisis “A” levels by the three major credit rating agencies during the first half of 2002. Moody’s upgraded Korea’s rating to A3, Fitch Ratings upgraded its long-term foreign currency rating to A, and Standard & Poors upgraded Korea to A-.
Korea’s total external liabilities stood at US $125.8 billion at the end of June 2002, with total external assets of US $171.4 billion. Korea has maintained its position as a less-indebted country according to World Bank standards.
The government has vowed to maintain its current macroeconomic policy framework while monitoring economic demands in order to promote stable economic growth. The government will also continue to ensure that market-driven principles take root in the financial as well as corporate sectors and will stress the development of logistical, business, and financial infrastructures to increase Korea’s industrial competitiveness. |
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hat time is now ancient history for KFB. The bank is now seen as one of the Korean government’s proudest success stories, bringing about an unprecedented transformation through a tactful implementation of westernized solutions and strategies into the Korean banking system. “With any transition, there is a certain level of pain both on the inside and outside. But through it all, our customers have been extremely supportive, and without their loyalty the continued transformation and success at KFB would have been impossible”, says Chief Operating Officer, Duncan Barker. |
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There was a time when Korea First Bank was bankrupt, when its employees were
concerned about their future. Morale was low and the future looked bleak.
Korea First Bank needed a miracle.
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After the economic crisis in 1999, the government courageously converted KFB into a well-performing pillar of the financial community, separating its bad assets and, for the first time, putting faith in international investors and western ma-nagement practices. The bank also played a leading role in the quick improvements that took place within Korea’s financial sector in the crucial years following the crisis. “Today, Korea First Bank enjoys one of the highest BIS capital adequacy ratios in the industry at 11.55% and it will be even higher in 2003”, says Chief Financial Officer Ranvir Dewan.
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Robert Cohen
President & CEO
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Currently, Korea First Bank is 49% state-owned and 51% owned by Newbridge Capital, a US-based private equity investor. The sale of KFB to Newbridge marks the first sale of a Korean commercial bank to a foreign investor. Over the years since the influx of foreign capital and management, the bank has been completely transformed and revitalized. Additionally, the bank has grown its domestic and overseas networks to include 390 branches/offices in Korea, as well as offices in Hong Kong, Tokyo, and London.
“Korea First Bank is a symbol of the willingness of the Korean government to attack the problems of Korean financial institutions quickly and swiftly”, states bank CEO and industry veteran, Robert Cohen. However, all did not welcome this influx of foreign “ideas” into the Korean banking sector. The Korean media persistently criticized the government’s move to hand over a majority stake in one of Korea’s oldest banks to foreign investors and foreign managers.
With only 6 foreigners out of over 5,000 employees, and 99.9% of its assets, deposits and staff being Korean, KFB is clearly a Korean bank. “The well-being of our employees is paramount; we want them to feel comfortable with any new ideas introduced”, says Cohen. The management team consists of international specialists who gave up successful careers in global finance to manage the bank and develop it into a leading position on the Korean market. The bank has shown remarkable strength and speed in its ability to mesh together a motivated and competent Korean workforce with a highly experienced foreign management team. “We are very serious about the cultural and communication issues associated with the fusion of Korean and Western banking practices. The ‘synergizing’ process continues to challenge the management; and we have learned much from these obstacles, but through extensive analysis and the implementation of data-driven solutions, we have proven that it can and does work”, remarks Cohen.
Over the last three years, KFB has continually been upgrading and perfecting its IT system, focusing on client relations by renovating branches and developing a variety of different channels to contact clients.
Jay Hyun, EVP and Chief Information Officer says, “IT was the weakest spot of the bank when the new management team arrived three years ago. After investing significantly in IT over the last three years, IT became one of our critical strengths. We now have the capability to develop and implement new products within a week.” The bank has put major emphasis on customer service through developing a fully integrated, state-of-the-art call center, setting the bar high for KFB’s competition.
Another of Korea First Bank’s successes has been the bank’s commitment to risk management. Many Korean banks have suffered heavily as a result of sloppy corporate and consumer lending.“As of the end of February 2003, KFB has the lowest delinquency rate for all the major Korean banks for household loans. KFB delinquency rate is 1.1% versus the industry average of 2.1%. Even in Korea’s turbulent credit card environment, KFB’s scientific approach has kept our delinquency well below our competitors,” remarks EVP Keith Shachat.
Korea is a country that is growing faster than any other in the world, having made remarkable development process in a mere two decades. KFB is a frontrunner, setting the pace of change in the Korean banking sector by maintaining the bank’s stability with data driven management decisions and implementing prudent yet innovative strategies. The bank’s “Let’s do it!” spirit is spreading across the bank, and KFB will continue to exhibit its aggressive nature in the years to come.
KFB is building the bank and balancing its assets through diversification and modern best practices, including client relationships, risk management, and direct marketing. The results show. Last year, customer assets grew by more than 60% and it is growing its retail banking business faster than anybody else in Korea right now.
“We have transformed ourselves over the last 3 years from bankruptcy to market example; and we have done so with new capital, new technology, new management, and new experience”, says Cohen. Through its forward looking strategy and the adoption of its unique, innovative management style, Korea First Bank has positioned itself for a bright future as one of Korea’s finest financial institutions. |
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