Asiamoney best bank awards 2018: Korea
Best domestic bank: Shinhan Bank
For Korea’s commercial banking sector, 2018 was an annus horribilis; many of the biggest lenders were assailed by recruitment scandals that claimed several chief executives, while underlying business was squeezed by a bunch of impressively disruptive digital upstarts.
Shinhan Bank is not above the fray here – like most of its peers, it is under investigation for alleged irregularities about hiring the children of powerful public officials and Shinhan group executives. But look beyond the sensationalist headlines and Shinhan, whosepresident and chief executive is Wi Sung-ho, has had yet another quietly impressive year.
It is the biggest first-tier lender by market capitalization and boasts a lower non-performing loan ratio than any of its peers. Net profit at the parent company, Shinhan Financial Group, rose 3.8% to $749 million in the third quarter of 2018 from a year ago, achieving a record high that puts it ahead of Hana Financial Group ($569 million) and Woori Financial Group ($536 million).
It is also one of the country’s most outward-looking lenders. Over the last two years, on the watch of president and chief executive Wi Sung-ho, it has bought two banks in Indonesia and opened branches in Sydney and Yangon. In December 2017, it finalized the acquisition of ANZ’s Vietnamese retail arm, transforming it at a stroke into the largest foreign bank in the southeast Asian country by assets ($3.3 billion), customers (900,000) and branches (30).
Shinhan’s global network now encompasses 162 branches scattered across 20 countries, including China, Japan, the Philippines, Australia and Cambodia.
But the expansion and its lending growth are not recklessly aggressive: outstanding loans rose 5.9% in 2017 from the previous year, and by 2% year-on-year through the first six months of 2018. Deposits increased 5% over the same period, in line with the country’s low-ish rate of economic growth.
The bank reported a net profit of W1.92 trillion ($1.7 billion) through the first nine months of 2018, an annualized increase of 13%.
Shinhan has also impressed with its efforts to compete with upstart digital lenders. In November 2018, it launched a new, stripped-down-and-simplified mobile banking application, SOL, and it continues to grow and invest in its fintech startup accelerator programmes in Korea and Vietnam.
Best corporate and investment bank: Woori Bank
Nominating a winner for this award is not easy. Korea’s economy is dominated by conglomerates whose interests stretch across multiple sectors and markets. Meeting their day-to-day corporate and investment banking needs is big business for local and foreign lenders alike, and the quality of service between one institution and another can be difficult to define and discern.
But Woori Bank is the winner of this award for 2018. A senior banker at a foreign lender with long-standing operations in Korea puts it this way: “The difference is marginal among the four big lenders. But in terms of banking large corporates, Woori stands out from the crowd, based on the quality of its services and its market share.”
The bank’s long-term ambitions are also becoming clearer as it pushes into new markets, with the aim of serving Korean chaebol and the larger small and medium-sized enterprises operating abroad.
Woori is probably Korea’s most ambitious global-facing lender, with 275 outlets in 25 nations, including Japan, Indonesia, the Philippines, Vietnam and North Korea. It aims to push that number to 500 by 2020 by focusing on markets such as India, Germany and Mexico.
Its investment banking team also has a distinctly international flavour to it. Woori was co-arranger on an A$1.5 billion ($1.09 billion) five-year, term loan for Australian property developer Walker in June. The following month, it was a lead arranger on a $890 million four-year loan for Hong Kong-based Kingboard Chemicals.
It has also dipped into the market twice itself over the last 12 months, issuing $300 million worth of five-year formosa bonds in Taiwan in January 2018 and raising $300 million via a heavily oversubscribed sale of tier-2 bonds in August.
Best international bank: Citi
Foreign lenders have long struggled to crack Korea. It’s a tough place in which to operate; bruising and bitterly competitive, only the tough and fully committed survive.
No international bank has done a better job of working out this fascinating and complex market than Citi. The US lender reported net income of W244 billion ($216 million) in the 12 months to the end of June 2018, up 2.8% from a year ago, on revenues of W1.22 trillion. It is strong across the board, serving international firms operating on the peninsular and leading local chaebol.
Citi’s excellence permeates its domestic operations, as you would expect, stretching across the retail spectrum to credit cards, a division that delivered 15% year-on-year growth in earnings before interest and taxes in the first half of 2018. It boasts strong unsecured lending and depositary receipt businesses, and is a growing presence in cross-border asset-backed securitization.
A long-term process of closing branches to reinvest in digital alternatives continues, with country chief executive and president Park Jin-Hei noting that 70% of the bank’s onshore branches have been shut down over the last 12 months.
And in investment banking, Citi remains a first-tier player. It topped the equity capital markets league tables in the year to the end of October 2018, completing deals worth a total of $2.84 billion, and placed second in the debt capital markets rankings over the same period.
It is the range of deals that Citi got over the line during the assessment period that really makes this bank stand out.
In January, it was lead underwriter on a $1 billion sale of global depository receipts by Kakao group, the parent of digital lender kakaobank; it also led a $1 billion combo block trade for biopharmaceutical firm Celltrion and its healthcare division in March. In August 2018, it advised Hanwha Asset Management on a $400 million investment in Vietnamese conglomerate Vingroup.
Best private bank: KEB Hana Bank
A decade ago, the founders or scions of corporate empires dominated the rich lists. But in recent years, the face of wealth has changed to reflect the successes of a younger generation of entrepreneurs.
Three of the 10 richest people in Korea are self-made, amassing their fortunes in online gaming long before they were 50. In 13th place on Forbes’ 2018 ranking of Korea’s 50 richest people is Kim Beom-su, a 52-year-old entrepreneur worth $2.6 billion who founded Kakao group. The company owns a messaging app installed in 90% of the country’s smartphones that later turned into a digital lender busy disrupting the banking sector. In Asia ex-Japan and ex-Australia, only China boasts more high net-worth individuals than South Korea, according to the latest World Wealth Report from Capgemini.
But are private banks keeping pace with their needs and those of a population that is younger, wealthier and more global in terms of its outlook and aspirations than ever before? Many global lenders, having grappled with the cost and cultural complexity of running an onshore private banking business, opted instead to focus on serving big-ticket corporate and institutional clients.
On the domestic front, two lenders, KEB Hana Bank and Shinhan Bank, stand out from the crowd, offering first-rate private banking services to local clients. And of the two, KEB Hana Bank is a worthy winner of this award. In 1995, it became the first local lender to launch private banking services: since then, it has regularly swept the industry awards.
It has won Euromoney’s ranking for best private bank in Korea four times in a row, consolidating its position with each year that passes. In 2018, it secured top scores in the main categories considered important to affluent Korean clients, including HNW advice and research and asset allocation.
Best digital bank: kakaobank
|Daniel Yun & Yan Lee|
Korea’s two fully licensed digital lenders, kakaobank and K Bank, hit the ground running in the second quarter of 2017. Both were well-funded and backed by large institutional shareholders: investment management firm Korea Investment Holdings and KB Kookmin Bank both backed Kakao, while a slew of well-heeled investors including KT Corporation (South Korea’s largest telecoms provider), Woori Bank and China’s Ant Financial invested in K Bank.
After that, though, their paths diverge. Since its formation, kakaobank, which has two chief executives, Yan Lee and Daniel Yun, has powered ahead, becoming the dominant onshore digital bank. It opened 240,000 new accounts within 24 hours of its launch, and at the end of September 2018, it boasted 6.8 million customers, or a quarter of the working-age population. K Bank’s growth has been far slower: it recorded 810,000 active customers at the end of September 2018.
The finances of Seongnam-based kakaobank, run by co-chief executives Daniel Yun and Yan Lee, also look rosier and less stretched: the digital lender reported a net loss of W12 billion ($10.6 million) in the first half of 2018, far smaller than K Bank’s W39.5 billion loss in the same period (which it blamed on the rising cost of IT upgrades). When K Bank tried to raise W150 billion in July by selling new shares, the deal fell flat and it raised only a fifth of the target amount, due in part to disagreements between shareholders over valuation.
But it is full steam ahead at kakaobank, which issued 700,000 debit cards in the third quarter of 2018, taking its total to 5.6 million.
The bank has focused intently on making its products easy to use. It takes customers an average of seven minutes to open an account and five minutes to secure a loan. Users of KakaoTalk, a free mobile-based instant messaging application with 47 million active monthly users, can send and receive money to one other without needing to open a bank account.
Best bank for SMEs: Woori Bank
The image abroad of corporate Korea is of the same big-name chaebol: LG, Samsung, Hyundai and so on. But like other wealthy markets geared toward manufacturing and exports (Germany and Japan), much value lies in small and medium-sized enterprises. These SMEs act as Korea’s beating heart, generating abundant employment and acting as vital crucibles of creativity.
Few of Korea’s leading lenders are shy about articulating their SME credentials, but no domestic financial institution can compete with Woori Bank. Founded in 1899, Woori has been providing invaluable financial advice and credit to smaller Korean firms ever since. It helped to transform the likes of Samsung and LG into international powers and is working hard to support the next generation of would-be global firms.
At the end of September 2018, outstanding loans to Woori’s 1.6 million SME customers totalled W84 trillion ($74 billion). Its roster of smaller corporate clients is growing in number by roughly 100,000 each year, serviced digitally or at one of the bank’s 878 nationwide branches.
Woori has joined with government agencies to channel W1 trillion to smaller firms and aligned itself with the ministry of trade, industry and energy and the Korea Technology Finance Corporation to disburse an additional W500 billion to highly creative and innovative smaller firms.
The bank’s digital team has rolled out a suite of mobile banking services tailored to SMEs, including a tax advisory application and a cash management app.
The latter, Woori reckons, is actively used by more than 150,000 corporates every month, helping them to manage their time and finances more efficiently.
Best bank for CSR: Shinhan Bank
Proving one’s worth in terms of corporate social responsibility isn’t easy. Some banks pay the concept little more than lip service or ignore it altogether. At the other extreme, PR-conscious global banks can often overshadow the quieter success stories that are woven by smaller regional or local lenders.
But not always. Shinhan Bank’s approach to acting and thinking as a responsible institutional citizen is to be commended and even emulated. The Seoul-based lender issued its first annual CSR report in 2005, since when it has made at least one big new annual CSR-related change, addition or action. In 2008, it joined the UN’s Global Compact, a non-binding accord encouraging global firms to adopt sustainable and responsible policies. Three years on, it adopted the Global Reporting Initiative (GRI) standards that help corporates, sovereigns and institutions to understand their impact on issues ranging from corruption to climate change. Two years after that, it was included for the first time in the Dow Jones Sustainability Indices.
And the bank’s altruism is keenly felt at the local as well as the macro level. Its Smile Finance Foundation helps financially vulnerable people trapped in a low-income, low-credit cycle to take out micro loans to buy essential goods or build a small business. Since 2009, the foundation has channelled W103 billion ($91 million) to 7,366 people.
Shinhan’s desire to help runs deep and takes many forms. Its ‘Arumin financial expedition’ programme provides financial literacy training to thousands of middle-school children each year, while its ‘Happy silver financial class’ extends financial help to tens of thousands of senior citizens, including invaluable advice regarding how to save for a long retirement. And it offers services tailored to blue-collar workers, helping them to borrow, save, invest and manage debts.
Anyone with a spare hour on his or her hands could do worse than read the bank’s latest CSR report. It isn’t a page-turner and it runs to 116 pages, but it demonstrates how valuable a bank can be, when it really commits.