2004, Year of the Mega-Bank War

The “Big Four” are finishing up on their reconstruction.

The reason why fierce competition among Korea’s four largest banks is expected in the coming year is because most of the aftermath of the mergers and acquisitions process has diminished. The mergers and acquisitions process had been taking place continuously since the foreign currency crisis in 1997.

Kookmin Bank has almost finished with merger work by focusing on the organic combination of two banks since its merger with Housing & Commercial Bank in November 2002. This August, it solved its biggest problem by incorporating the Kookmin Card that was operating in the red.

Additionally, Woori Financial Holdings, launched in April 2001 and the holding company with perhaps the most aggregate business of the year, has overcome the aftermath of incorporation while moving into the black with more than one trillion won in profits this year. It also has decided to incorporate the Woori Card by next year, removing its last obstacle.

Shinhan Financial Holdings, which has succeeded in enlarging its size by absorbing Choheung Bank as a subsidiary this September, has become the second-biggest company in its assets following behind Kookmin Bank. The two banks have developed joint products and exchanged services, which have already produced synergistic effects.

Hana Bank, which incorporated Seoul Bank last December, was also found to have successfully resolved the conflicts between the two different systems. The Bank has successfully performed the role as the main bondholding bank of “SK Network (formerly SK Global) Crisis” that endangered the banking industry this year, thus establishing itself firmly in the Big-4 system.

International banks such as HSBC, CitiBank, and Standard Charters are working to extend their market shares in the national market, and will also emerge as a new factor in the war of the mega-banks.

The keyword for unlimited competition is profitability and effectiveness. Experts say quantity competition among the four banks, Kookmin, Shinhan, Woori, and Hana, ends in 2003, and the era of quality competition will start in the coming year.

Analyst Han Jung-tae of Mirae Asset Securities says, “With the year 2003 gone, the competition in the size of the banks has come to an end, and now a bank which furnishes the quality of helping to make business profitable will be the leading bank.”

Senior Researcher Kim Jang-hee at the Kookmin Bank Research Institute says, “From next year, there will be a fierce fight among the banks to keep their quality customers and to gain other banks’ quality customers,” foreseeing, “A bank whose headquarters has good results in business and management skills will be more likely to take the market lead.” Along with this, more competition is expected in the sectors of private banking, asset-backed securities, and the infrastructure market.

Woori Bank, which is expected to be the most profitable this year will also be the most likely to attack first. Lee Duk-hoon, Woori Bank CEO, said, “In the new year, the four banks will be involved in a fight, and the only way to survive in the long term is to become the number one. Woori Banks has finished its preparation.”

Hana Bank will arrange an aggressive position while supplementing its securities and credit card section in which the bank performs poorly compared to others. Regarding the incorporation of the securities and card company, Kim Seung-yoo, the bank’s CEO says, “I am thinking of many methods for the economics of scale for next year.”

Shinhan Bank, with a relatively slower merger pace, will focus more on defense. CEO Shin Sang-hoon said, “We will do business for the sake of profitability before focusing on outside growth, and we will also advance our transactions with our core customers in the deposit and loan sector and increase profits in the non-interest sector.”

Kookmin Bank, viewed as undefeatable and strong from the outside, is at ease regarding the war among the four strongest. However, it is strongly guarding against the foreign influences coming into the market. Kim Jung-tae, Kookmin Bank CEO, said, “There are big differences among the national banks even if they are all called the big four,” and expressed his concerns saying, “Rather, whether or not the global players such as HSBC and CitiBank will enter the domestic market will be decided sometime next year, and if any of these banks enter the market, it is highly likely that the big four will be left out” in scale and competitiveness.