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In May, FinanceAsia named the winners of its annual Country Awards for Achievement. We'll present the awards at our annual awards dinner in Hong Kong tonight. Today, we present the rationale for our decisions to celebrate the best in banking in Korea.
Best Bank: Kookmin Bank
The year of 2017 was an important year for Kookmin Bank’s expansion into Southeast Asia, which was part of the bank’s core strategy as it leverages on its large domestic network to serve customers outside its home country.
Among the major achievements was the establishment of KB KOLAO Leasing, an 80-20 auto financing joint venture in Laos set up with local car maker KOLAO Holdings. The operation started in March.
Kookmin Bank has been working to strengthen its non-bank businesses and started to feel the benefits last year. In the fourth quarter, the lender reported a 16.2 % year-on-year increase in non-interest income to W724 billion ($656 million), making an important contribution to overall revenue growth at a time when its banking operations remained largely unchanged due to increased funding costs.
At the group level, parent KB Financial continued to improve its bottom-line with a consolidated net profit of W3.3 trillion in the financial year ended March 2018 while keeping its credit costs at a relatively low level.
In 2017, Kookmin Bank grew its loan balance by 6.5% year-on-year to W290.1 trillion and strengthened its position as Korea’s largest commercial bank by asset value. The loan growth was mainly driven by increases in household and small- and medium-sized business lending.
Last year, Kookmin Bank declared a record-breaking full-year dividend of W1.92 trillion, translating to a 23.2% payout ratio compared with 22.3% a year earlier. The bank’s management has indicated that it will aim at a 25% payout ratio in the medium-term and 30% in the long run.
In terms of digitalisation, Kookmin Bank launched in July last year a new peer-to-peer payment and messaging app known as Liiv TalkTalk, which offers encrypted messaging for both consumers and businesses and secures both the bank’s and end users’ data across the full range of Android and iOS devices.
Best Investment Bank: NH Investments & Securities
In a year of insignificant M&A activity in Korea, NH Investments & Securities struck a nice balance between equity and debt capital markets.
In ECM, NH advised on 15 transactions including a massive $1.1 billion rights offering by Hyundai Heavy Industries, Korea’s leading shipbuilder. The capital raise lowered the company’s gearing ratio to 78% from 89.9% in December last year.
The fundraising, solely underwritten by NH, was executed during a difficult period when the shipping industry was under pressure from higher operating costs and weak global trade. Hyundai Heavy Industries’ loss-making status did not help with the fundraising either.
NH was also a joint bookrunner with Credit Suisse in Hyundai Mipo Shipbuilding’s $309 million stock sale in Hyundai Robotics, one of the largest after-market block trades during the award period.
And despite coming third in the overall DCM league table behind KB Securities and Korea Investment & Securities, NH advised on some large transactions including LG Chem’s W800 billion triple-tranche senior note in May last year.
Best DCM House: KB Investment & Securities
For the second consecutive year KB Investment & Securities is FinanceAsia’s best debt capital markets operator in Korea, maintaining top spot for underwriting won-denominated corporate bonds.
Corporate bond issues took a sharp plunge last year as Korea’s central bank raised the country’s benchmark interest rate in November – the first hike in six years. KB was not immune to this decline and underwrote 786 deals totaling $21.2 billion during the award period compared with 1,296 deals and $52.5 billion in the same period a year earlier, according to Dealogic. But that still gave it a commanding 53.4% share of the local DCM market, with its nearest challenger on just 8.2%.
Notable deals include Hanwha Life Insurance’s W500 billion 30-year senior note, which KB jointly underwrote with Daewoo Securities. It was also the sole underwriter for Hanwha Total Chemical’s W190 billion bond due 2023.
It is worth noting that KB Securities advised on multiple bond sales for LG Group during the award period, including seven separate bond sales for LG Chem and three for LG Display.
Best ECM House: Daishin Securities
Daishin Securities climbed sharply up Korea’s equity capital markets league table last year thanks to its massive underwriting deal for convenient store operator BGF’s W929 billion stock placement in March.
Daishin is historically better known for its trading services but not last year, with the securities house coming fifth in the overall ECM league table, jumping six spots from a year earlier. It also topped all local securities houses with 13 deals underwritten during the award period and secured a 8.3% market share.
The BGF transaction was among the biggest equity transactions solely underwritten by a local securities house. The share sale also formed part of a bigger group reorganisation that saw BGF restructure its logistics, food and insurance businesses into a holding company.
Daishin also advised on Aekyung Industrial on its W198 billion share sale and Maeil’s W145 billion stock offering.
Best International Bank: Citi
Korea’s banking industry had been under pressure for three years as declining exports and rising household debt weighed on profitability. But there were signs of improvement in 2017, with the economy generally picking up and exports recovering. And in November the Bank of Korea raised its benchmark interest rate for the first time in six years, underscoring the government’s confidence in the improving economic situation.
Against such a backdrop, Citibank Korea reported a 15% year-on-year increase in annual net income, thanks to a staggering 192% jump in non-interest income including FX and derivatives gains, as well as investment and insurance product sales.
At the same time, Citi Korea improved its capital structure with its capital adequacy and common equity Tier 1 capital ratios rising to 18.93% and 18.43%, respectively. Both figures were the highest among all commercial banks in Korea.
Citi Korea’s non-performing loan ratio improved three basis points to 0.57% while its NPL coverage rose by 11 percentage points to 146.6% compared with the end of 2016. Return on assets and return on equity also improved 0.5% and 3.7%, respectively.
As a long-term strategy, Citi Korea continued to build out its wealth management franchise to offset a reduction in its struggling retail banking business. After launching two wealth management centres in Banpo and Cheogdam in 2016, the bank opened another two hubs in Seoul and Dogok last year, while another new centre in Pangyo will start operations in August this year.
Best International Investment Bank: Goldman Sachs
In a period of dynamic political change in South Korea and geopolitical tension on the peninsula, Goldman Sachs was the pick of international investment banks as it turned its long-term relationships with clients into revenue.
Goldman Sachs managed to leverage its private equity clients in a year with relatively few transactions from Samsung Group, which has always been one of the country’s biggest dealmakers.
One example was its advisory role in Bain Capital's US$2.7 billion sale of Carver Korea to Unilever in May last year, the biggest M&A deal out of Korea last year. Bain Capital made an investment return of more than 300% in just 15 months after acquiring Carver Korea for about $850 million in July 2016, together with Goldman Sachs’s prime investment division.
Goldman Sachs also assisted MBK Partners with its partial exit from ING Life Insurance Korea through its $974 million initial public offering in May last year, striking a 14% annualised return for the Asian private equity firm over a three-year period. In the same month Goldman Sachs executed a $330 million block sale in Coway shares on behalf of MBK.
Korean president Moon Jae-In is determined to reduce the economy’s reliance on large conglomerates and that is being felt in investment banking, prompting banks to explore new clients outside the chaebols.
One of Goldman Sachs’s new clients was Kakao Corporation, which operates Korea’s largest instant messenger. The US bank assisted Kakao with its $1 billion sale of global depositary receipts in Singapore last year, setting the stage for the homegrown Korean tech firm to expand regionally.
It is worth noting too that Goldman Sachs advised Hyundai Motor extensively against Paul Singer's activist hedge fund Elliott Advisors in the wake of the country’s biggest shareholder activism campaign after Samsung/Elliott in 2014.
