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(News Focus) KB Financial reforms itself to regain top spot
By Park Bo-ram
SEOUL, Aug. 12 (Yonhap) -- In a bid to reclaim its long-time status as South Korea's financial leader, KB Financial Group Inc. is ramping up efforts to boost profitability and efficiency following the inauguration of a new chief and a sweeping reshuffle of ranking managers.

   Last month, Euh Yoon-dae, a business professor and the national branding committee head, was sworn in as KB Financial's chairman, filling the top post left vacant since his predecessor Hwang Young-key stepped down in late September of last year.File photo
As the new chairman took his position, he lashed out at KB Financial's inefficient and heavy-cost business structure, branding it as "a patient suffering obesity" and expressing his invincible determination to put the financial group back into shape.
His inauguration was followed by the appointment of Min Byong-duk as the CEO of flagship unit Kookmin Bank and a host of division heads for the bank and the wider parent group.

   Min, who built his career at the bank, joined the chairman's reform drive, also vowing to "make utmost efforts to transform Kookmin Bank into the most competitive and strong lender in South Korea."

   Euh's pledges gained more gravity and urgency as KB Financial posted a net loss of 335 billion won (US$280.6 million) in the second quarter of this year, the first red ink since September 2008, when it set sail as a holding company having Kookmin Bank and other non-bank subsidiaries under its wing.

   Early this year, KB Financial gave up its position as the largest financial company by market capitalization, to rival Shinhan Financial Group Co. It held the leading status over the past decade.

   The results laid bare impaired profitability and efficiency plaguing KB Financial, and the newly-appointed executives were quick to respond with a batch of measures to push it back to the leading position.

   First, the chairman slashed his own salary by 15 percent and alluded to more labor cost-cutting schemes to come.

   Following suit with its parent group, Kookmin Bank, which is responsible for 90 percent of the group's total net profit, the bank unit abolished three redundant divisions to settle for 10 as part of a slim down.

   Chairman Euh also shelved his plan, openly flagged before taking office, to merge with Woori Finance Holdings Co., a major banking player put up for sale by the government, citing the priority to boost share prices and reboot productivity.

   Some analysts predict KB Financial's recent efforts could play as a catalyst for the company to win back the leading status, but also points out pressing challenges ahead.

   "KB Financial's agility (to generate profits) has dulled after remaining as the leading bank for so long," said Yoo Sang-ho, an analyst for Korea Investment & Securities Co. "The chairman is correctly assessing problems and his pledges suggest KB Financial's shift toward the improvement of its weak constitution from a former drive to grow larger."

   But the banking group must cut its heavy dependence on the banking operation as a revenue source and diversify its business portfolio into brokerage and credit card sectors in order to ratchet up profitability, Yoo said.

   Given that, KB Financial's recent move to spin off a credit card unit will be a positive factor for the long run since the change could facilitate the sale of more diverse products and the use of a more aggressive marketing strategy, he said.

   Others remain skeptical about whether KB Financial's restructuring drive will be able to help it turn around in the short period of time.

   Seo Young-soo, a Kiwoon Securities Co. analyst, said he is not sure KB Financial will post a big profit in the third or even last quarter because its loans are less linked to an uptrend in interest rates than those of its peers.
"It is uncertain whether the new CEO's efforts to bolster corporate value will pay off in the short haul," Seo said in his recent report.

   "The net loss (in the second quarter) has come from a long period of weakened revenue caused by a management issue such as the vacant chairmanship," he said. "It will be also affected by rising defaults due to a sluggish real estate market as it has the biggest portion of household loans."