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NongHyup’s rise changes Korea’s financial landscape

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Published : 2014-04-17 20:58
Updated : 2014-04-17 20:58

NongHyup Financial Group finalized its takeover of the brokerage units of Woori Financial Group last week, signaling a major shake-up in the local financial industry.

By acquiring and combining Woori Investment & Securities, Woori Aviva Life Insurance and Woori Financial Savings Bank, the group has become the industry’s fourth-largest player.

With assets boosted to 290 trillion won ($280 billion), it is now a considerable threat to company leaders KB, Hana and Shinhan. As of 2013, KB Financial Group held 296 trillion won in assets, while Hana had 295 trillion won.

Furthermore, the acquisition of Woori Investment & Securities, the country’s largest securities firm, has turned NongHyup into the new industry leader with assets worth 37 trillion won and equity capital of 4.3 trillion won.

With its insurance business already dominating the local sector, NongHyup will have a strong advantage in nonbanking, helping diversify its financial portfolio.

“By purchasing the Woori brokerage package, we have come to have the most stable business portfolio among financial groups,” said NongHyup chairman Yim Jong-yong.

Despite the new advantages, NongHyup is still up against some formidable rivals in the field.


Shinhan, the unrivaled champion

Shinhan Financial Group, the unrivaled champion since 2008, remained the least affected by the turbulence.

The group’s total assets amounted to 311 trillion won as of the end of last year, far exceeding those of the runners-up.

Also, its key affiliate Shinhan Bank recorded 1.4 trillion won in net profit last year, becoming the only survivor among the so-called “1 trillion won bank club” while KB and Hana failed to reach the milestone.

The group also has a well-balanced portfolio consisting of both banking and nonbanking businesses. Almost 40 percent of Shinhan’s 2013 profits were from nonbanking affiliates.

Such achievements are largely attributable to timely mergers such as with Choheung Bank in 2003 and LG Card in 2007, according to officials.


KB to expand nonbanking operations

Despite its wide customer base and strength in banking, KB Financial Group appears to be fumbling with how to diversify its business, especially in nonbanking.

As of 2013, KB Kookmin Bank had a total of 28 million customers, beating NH NongHyup Bank (27 million), Shinhan Bank (22 million) and Hana Bank (10 million).

But the group is anxious about its weaker nonbanking sectors, as a series of merger attempts ended in failure, including the recent bid for Woori’s brokerage house. KB is currently working to acquire LIG Insurance, but the likelihood of the deal is still unclear, officials said.

To make matters worse, the group has been mired in a recent string of financial scandals, including data leaks and employee misconduct.

“Our future may depend on the expansion of nonbanking businesses, as we are now standing at a crossroads,” said an official. “(The fall of Woori Financial and the subsequent rise of NongHyup Financial) have certainly triggered a sense of alarm that we, too, may fall from the mainstream.” 


Hana to capitalize on ties with KEB

Hana Financial Group, a leader in retail banking and private banking, holds a double-edged sword in its hand.

When it acquired Korea Exchange Bank in 2011, the group’s assets surpassed Kookmin’s. It was able to secure a record number of overseas branches.

It was against such a backdrop that chairman Kim Jung-tai, announcing the group’s long-term vision in January, pledged to boost the ratio of overseas profits from the current 15.7 percent up to 40 percent by 2025.

Also, the coupling of Hana’s retail banking function and KEB’s corporate banking function is expected to create a synergy effect.

“Like our merger with KEB, NongHyup’s acquisition of the Woori brokerage package will act as a strong driving force in the market, which may turn out to be a risk element for us in the coming years,” said a Hana official.

However, the group is still troubled by an ongoing conflict with the KEB’s labor union, as well as by its relatively small pool of banking customers.

By Bae Hyun-jung (tellme@heraldcorp.com)

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