KB's Ambition as a 'Leading Financial Institution' with Successful Risk Management

The Only Successful Risk Management
Market Cap Surpasses Shinhan Financial
Secures Leadership in Prudential Acquisition

[Asia Economy Reporter Jo Gang-wook] KB Financial Group is continuing its swift moves to reclaim the title of 'Leading Financial Group' lost to Shinhan Financial Group. While the financial sector has been struggling with various private equity fund scandals such as the Derivative Linked Fund (DLF) and Lime Asset Management incidents, KB Financial Group is the only one to have successfully avoided both crises, demonstrating effective risk management. Its market capitalization has also surpassed Shinhan Financial Group, ranking first in the financial industry. There are expectations that if KB Financial succeeds in acquiring Prudential Life Insurance, it will secure a leading position in the competition among financial groups.

According to financial information provider FnGuide on the 22nd, last year Shinhan Financial Group recorded an annual net profit of 3.445 trillion KRW, narrowly ahead of KB Financial Group's 3.307 trillion KRW net profit. Following them were Hana Financial Group with an estimated 2.432 trillion KRW and Woori Financial Group with 1.959 trillion KRW. It was anticipated that Shinhan Financial Group would comfortably maintain its leading group status.

However, the situation this year is different. KB Financial Group is seeking to reclaim the leading financial group position by expanding its scale against Shinhan Financial Group. Recently, Woori Financial Group, which was expected to compete in the acquisition of Prudential Life Insurance, withdrew, leaving KB Financial Group as the only financial holding company to officially enter the race.

As of the end of September last year, Prudential Life Insurance's total assets stood at 20.8081 trillion KRW, with a solvency margin ratio (RBC) of 515.04%, ranking it first in the industry by a wide margin. Its cumulative net income for the third quarter was 146.5 billion KRW. During the same period, the total assets of KB Financial Group and Shinhan Financial Group on a consolidated basis were approximately 545 trillion KRW and 506 trillion KRW, respectively. If KB Financial acquires Prudential Life Insurance, its assets will reach about 530 trillion KRW, approaching Shinhan Financial Group's scale, and its operating profit will even surpass it. Combining KB Life Insurance, ranked 13th with about 19.3 trillion KRW in assets, and Prudential Life Insurance, ranked 11th, would result in approximately 39.5 trillion KRW in assets, making it the fifth largest in the industry. This is why it is expected to be the starting point for KB Financial Group to reclaim its position as the leading financial group. In fact, until 2017, KB Financial Group was the leading financial group, but the ranking was reversed when Shinhan Financial Group acquired Orange Life (formerly ING Life).

Additionally, KB Financial Group has the advantage of being the only one to have avoided the DLF loss incident and the Lime Asset Management fund redemption suspension, which have thrown the financial sector into panic since last year. KB Kookmin Bank reportedly fully redeemed about 75 billion KRW of Lime Asset Management funds in July last year. However, except for Kookmin Bank, Shinhan, Hana, and Woori Banks are all entangled in the Lime incident.

Kookmin Bank also avoided the DLF, which caused large principal losses at Woori Bank and Hana Bank. The bank's Wealth Management (WM) Product Committee rejected the sale approval of DLF due to high risk, which turned out to be a 'masterstroke.' Due to the DLF incident, the CEOs of Woori Financial Group and Hana Financial Group are currently awaiting disciplinary decisions from the Financial Supervisory Service's sanctions committee. The head of Shinhan Financial Group is also not free from legal risks due to allegations of hiring irregularities.

The market capitalization ranking has already been overturned. Last year, Shinhan Financial Group seemed to solidify its position as the number one in the financial sector with a significant gap, but towards the end of the year, KB Financial Group began share buybacks citing shareholder returns, changing the situation and ultimately reclaiming the top spot in market capitalization. As of the 21st, KB Financial Group's market capitalization stood at 19.6885 trillion KRW, ranking 13th on the KOSPI, while Shinhan Financial Group was just below at 19.6319 trillion KRW, ranked 14th.

Park Hye-jin, a researcher at Daishin Securities, said, "As of the third quarter last year, KB Financial Group had the highest capital ratio (15.3%) among domestic financial holding companies," adding, "It is the only financial holding company capable of simultaneously pursuing mergers and acquisitions (M&A) and shareholder return policies."