- Financial market turmoil creates opportunities for KB Financial, CEO says
According to Nikkei Asia article published on March 29, 2023, KB Financial, South Korea's largest banking group, is looking to take advantage of the recent financial market turmoil by making overseas acquisitions in countries like India and Indonesia, the group's CEO said.
"A turbulent time may provide a very valuable chance," Yoon Jong-kyoo said during an interview in Tokyo with Nikkei Asia. "We think we have a good reason to pursue such a chance, if any."
But Yoon also said his company will carefully sift through opportunities and not make acquisitions just because prices are low.
"Except in asset management, we don't think we have a very strong competitive edge in European countries or in the U.S.," he said. "That's the reason why we are more focused on Southeast Asia."
Yoon said India and Indonesia are the two favorites for South Korea's largest financial group. Both, he said, are poised to benefit from ongoing tension between the U.S. and China.
"In the case that the United States has a very cautious stance toward China," he said, "I think Indonesia or India has a very strong probability to replace China's position.
KB's overseas push is an answer to activists' demand that the bank do more to reinvigorate its share price. It is one of seven Korean banking groups targeted by Korean activist investor Align Partners.
The company's stock rose in the years after Yoon took the helm in 2014 but it is now below its 2018 peak. KB is valued at four times earnings -- compared with an average of 12 times earnings for all issues in Korea's KOSPI index -- and only 0.4 times its book value.
The Korean financial group, which centers around Seoul-based Kookmin Bank, acknowledges that it is not immune to the market turmoil. After a jump in global credit spreads, the company had to reconsider a plan to augment its local currency borrowings by issuing foreign currency debt in the second half of this year. But Yoon says his company has enough money to support its overseas expansion without tapping the capital market for the time being.
Japanese and South Korean banks often attract attention as possible havens during a time of market turmoil. They are seen as operating in a more conservative manner than their Western peers and having more stable deposit bases and stronger government support. In 2008, Japan's Mitsubishi UFJ Financial Group invested $9 billion in Morgan Stanley to support the Wall Street bank, while Nomura took over the Asian and European operations of Lehman Brothers.
The bankruptcies this month of two U.S. regional banks -- Silicon Valley Bank and Signature Bank -- and the government-led rescue of Credit Suisse on March 19 have heightened concerns about the credit risks of U.S. regional banks and European banks. At one point, shares of First Republic Bank in San Francisco fell by as much as 90%; those of Deutsche Bank have lost almost 30% this month.
Both Japanese and South Korean financial groups have stayed away from investing in battered banks this time around. On Monday, Japan's Sumitomo Mitsui Financial Group instead announced the acquisition of a 15% stake in a major Vietnamese bank for $1.5 billion, as part of the Japanese banking group's broader push into Southeast Asia and India, following its acquisition in July of one of India's largest nonbank lenders.
KB, for its part, acquired a controlling stake in Indonesia's Bank Bukopin in 2020 and took full control of Cambodian microlender PRASAC in 2021.
It also has partnered with Sumitomo Mitsui Financial since 2008, mainly in the area of commercial banking, while in investment banking, it has had an alliance with Jefferies since 2020. With Sumitomo Mitsui Financial and Jefferies also having a capital partnership, "KB group is keen to explore a close tripartite relationship" with the other two financial groups, said Peter Kim, managing director at KB Securities.
KB, a diversified financial services company with brokerage and insurance operations, has not been as geographically diversified as its Korean rivals, said Michael Makdad, a banking analyst at Morningstar. KB's overseas earnings contribution is still around 5% compared with above 10% for its closest rival, Shinhan, Makdad said. Yoon stressed, however, that under the company's long-term strategic plan, overseas and cross-border businesses should contribute more than a quarter of KB's earnings by 2030.
KB's business is weighed toward domestic home loans. But with South Korea being one of the world's fastest-aging societies and its household sector already under a heavy debt burden, domestic growth opportunities are seen as limited, with interest margins expected to narrow over time, Morningstar's Makdad said.
"That's the reason why we come to the overseas market," Yoon said, referring to the country's demographic situation. The company needs to find "a growth drive," he said.
KB will focus on getting its investments in Cambodia and Indonesia on track while also looking for opportunities for acquisition in other markets. "In the case that there is a good chance from the Indian market or other markets," Yoon said, "we do not lose such a chance."
