Hyui-Nan Sa, head of KB Kookmin Bank’s custody business discusses how the bank is winning more new mandates and investing into new technology to defend its market leading position
KB Kookmin Bank (Kookmin Bank) is among South Korea’s largest banks with total assets of KRW 323 trillion ($290 billion) and more than 30 million customers.
The bank’s custody business specialises in safeguarding financial assets such as securities for asset management firms, insurance companies and other institutional investors. Its main supporting activities involve settling financial transactions, safekeeping assets, evaluating net asset values and corporate actions. It also offers credit and financing, tax management and other core custody services.
Winning more new mandates
Kookmin Bank’s custody business reached KRW187.0 trillion ($167.6 billion) in assets in August 2018, giving it the largest market share of 21.3% among the eleven custodian banks in South Korea.
The bank’s custody portfolio composes a diversified range of assets such as investment trust funds, equity-linked insurance and pension funds. This balanced portfolio allowed it build a strong profit base of custody service fees.
In particular, it held the largest market share and covered more than 60% of the market in the equity-linked life insurance business, helping it to retain its top position. It won more than 160 mandates, accounting for approximately KRW180 trillion ($160 billion) in assets, and currently administers 6,400 funds.
It onboarded 162 institutional clients, comprising asset management firms, insurance companies, pension funds and institutional investors.
One of its largest institutional clients is Korea Post, the state-owned postal, banking and insurance service provider. Kookmin Bank has been the trustee bank for its insurance assets since 2012. In December 2017, the bank won the mandate to be trustee for the company’s savings deposit assets of KRW15 trillion ($13 billion) as well. It has served as Korea Post’s integrated trustee bank since March 2018.
It also won the mandate to administer the variable insurance assets of Samsung Life Insurance, one of the country’s top insurer, in a competitive bid from the incumbent.
Capping off a year of strong performance in the insurance sector, Kookmin Bank was also selected as the sole trustee bank for the variable insurance assets of Prudential Life Insurance Company in December 2017. This added about KRW3 trillion to the bank’s assets under custody in February 2018.
In addition, in the investment trust market, it is the custodian bank of the majority of asset management firms in South Korea – 80 firms - such as Mirae Asset Management and Samsung Asset Management.
“We are pleased to have Korea Post and Prudential Life as our new customers this year. It means these top tier investors recognise our quality service and value in the industry to satisfy their standards. Hence, we are not stratifying current position but constantly trying to revolutionise our service retaining the leadership of custody business industry in Korea,” said Hyui-Nan Sa, general manager of KB Kookmin Bank’s custody business department.
Kookmin Bank improved its business profitability by expanding fund custody especially in overseas investment funds, real estate funds which have relatively higher custody fee rate. In addition, it diversified its profit sources by revitalising its asset lending and borrowing business for equity and fixed income assets and stabilised its sub-custodian business in the local market.
The total amount of overseas investment fund assets under custody increased by approximately KRW20.3 trillion from 2016, reaching a total of KRW37.1trillion, which also gave it the leading market share.
Defending its market position
To defend its leading market position in the past 15 years, the bank aims to continuously improve client value, support business growth and strengthen inner capabilities.
In 2013, Kookmin Bank developed and implemented a specialised integrated custody management system called KBICS+, to ensure that it is able to keep abreast of the increasingly complex and sophisticated requirements of its institutional clients.
It has continuously upgraded the system ever since. In 2017, it poured in an additional investment of about KRW1.2 billion ($1.1 million) to push forward what it described as a massive system improvement to strengthen work efficiency through automation of tax management and system. It improved verification of tax data calculated by the general administrative department, increased consistency and reliability of data provided to customers.
The upgrade allowed the bank to cope with the increase in volume and complexity of business in spite of the increase in assets under management to KRW37.7 trillion ($35.4 billion) throughout 2018.
The continuous development and research of the KBICS+ system has improved the efficiency of risk management. It has also strengthened client information security, business continuity and enabled risk level reduction.
It facilitated improvement of process and system that actively reflected the needs of specific institutions, such as strengthening corporate action management of overseas assets, management of trading accounts of securities companies, operation of one-stop relationship management personnel, which led to the acquisition of large-sized new institutions such as Korea Post and Prudential Life Insurance Company.
In 2017, the bank also introduced “consignment” services such as specialised data reporting through its web service to principal clients, including Metlife Insurance and Korea Post. The web-based custody services provide a wide range of market data and information online, and ensure strong client service and satisfaction. The web service allows the bank to expand the range of custody services it can offer to is customer base.
“A custodian bank’s competitiveness depends directly on whether the consignment services they offer meet the demands and requirements of insurance companies and institutional investors, as the custody asset type shifted currently from the past investment trust fund assets. Hence, we constantly focus on the IT development and process streamlining in order to satisfy our targeted clients’ needs for specialised and unique custody and reporting services,” commented Sa.
Gearing up for the future
Even though the market environment has become more competitive, and management fees have been gradually decreasing over the years, Kookmin Bank continuously invests in high-return international investment. Kookmin Bank continues to accelerate its expansion into cross-border custody business with collaboration with top global custodian banks. It acts as a sub-custodian bank to global custodian banks in the South Korean market and is growing its related assets under custody steadily. Asset under custody increased 90% year-on-year.
In future, the bank aims to increase the custody market share by refocusing on major pension funds, insurance companies and institutional investors.
It focuses on building up inner capabilities and intensive marketing activities to increase market shares of high yield funds such as overseas investment funds and real estate funds. Moreover, it aims to attract foreign investors and new investors including asset management firms and other institutional investors to increase revenue in custody asset.
It is also focusing on improving employees’ sales skills by providing specialised training programmes to deliver a high standard of quality custody services in the industry.