State-run bank focuses on diversifying funding sources by tapping niche markets
For more than 40 years, the Korea Development Bank has built up a reputation as a core Korean bond issuer in the global capital market.
The state-run bank was founded with a mandate to supply and manage major industrial capital to develop Korean industries and the economy.
KDB bond has continued to perform a crucial role in providing foreign currency funding. Foreign currency denominated bond issuance is one of the core competencies.
The bank is focusing on leveraging the investment banking experience to become a competitive corporate investment bank in aspect of its links with various business units such as bond underwriting, syndication, swaps and fixed income trading.
It also expanded the investor base and is striving for currency diversification.
“KDB’s history mirrors the history of Korea’s financial industry,” said Kim Su-jae, head of the bank’s international banking department.
Kim Su-jae, head of international banking at KDB
“While our main role has been to support the nation’s economic development through funneling industrial capital to this date, our goal now is to expand the banking territory through exporting financial services,” he said.
He also said that KDB will stand in the forefront in expanding Korea’s banking territory, based on its manpower, expertise in international banking, and product development know-how.
The bank has guided foreign currency denominated funding activities in Korea, starting with borrowing an AID loan in the 1960s, first International bond issuance in 1974 (UAE Dirham denominated), first Samurai bond issuance in 1978 and so forth.
In 1990s, on the back of accumulated market experience and knowledge, KDB became the first among Korean issuers to price Yankee bond in 1990 and the Global bond in 1994, setting a benchmark for its peers.
It printed the nation’s first Kangaroo bond in 1996, and first euro-denominated bond in 2000.
The headquarters of the Korea Development Bank in Yeouido, Seoul
The bank has exerted a substantial effort to strengthen its reputation in international capital markets through IR on a regular basis, and to extend the investor base. At the same time it has set benchmarks in the United States, Europe and Japan and solidified its role as an issuer.
Since the government announced in 2008 a plan to privatize KDB, it has looked to a new funding strategy suitable for the coming era, which can maintain its reputation and obtain low-cost good-quality funds in a timely way.
In particular KDB is focusing on diversifying its funding sources by carving out niches such as Australian dollars and Brazilian reals.
To diversify funding sources, KDB will look to explore Asian regional markets such as the Thai Baht, Malaysian Ringgit and Chinese yuan.
KDB has accelerated its project to issue bonds in such markets by obtaining approval from the regulatory bodies in the respective countries.
KDB officials said the bank was doing its best to finance in niche markets this year.
“KDB will continue to push ahead with Korea’s international funding, by pioneering niche markets, leading other Korean borrowers as the most sophisticated market player,” a bank spokesman said.
The bank says that recent financial trends are driving KDB to become an internationally competitive investment bank.
Becoming a global investment bank conforms to KDB’s goal of becoming the nation’s financial market leader as well as to the government policy of turning the nation into the financial hub of Asia.
“Backed by its strong domestic customer base, we will turn into global, providing comprehensive services to customers worldwide,” bank official said. “To this end, KDB has set up short and mid-term plans in three main areas and will carry them out step by step.”
First, KDB is expanding new businesses in the overseas market to avoid unnecessary competition in the domestic financial market and to increase the national wealth by diverting the abundant foreign liquidity inflows to overseas investment.
For example, KDB is utilizing its Hong Kong subsidiary, KDB Asia Ltd., to launch offshore private equity funds and run international asset management businesses.
Also, through agreements with development financing agencies in emerging markets, the bank plans to discover new overseas energy and resources development projects to support.
Moreover, by employing its network with the Northeast Asia Development Financing Council, the three northeastern provinces of China and the Trade and Development Bank of Mongolia, KDB will open up new project-financing markets overseas.
Secondly, the bank is poised to raise its investment banking business to the global level. In doing so, it will seek to emphasize its role as the lead manager of overseas bond issuance.
Furthermore, in an effort to diversify its client base, KDB said it would increase its share of loans to non-Korean residents overseas, while expanding its financial products for these residents to the areas of foreign exchange and derivatives.
It also plans to upgrade its operational infrastructure and organizational structure through various measures, including fostering key regional branches that optimize unique traits of each region.
In addition, the bank is considering establishing a global dealing system that links the trading center of its headquarters with the overseas network and runs around the clock for foreign exchange and bond trading.
KDB will increase recruitment of outside professionals to further enhance the bank’s professionalism. To better attract and retain competent trading experts, KDB will broaden the range of its incentive payment.
The bank is modeled on UBS, Switzerland’s largest financial services firm, and Temasek Holdings, Singapore’s state-owned investment firm, bank officials said.
By Kim Yon-se (email@example.com