KB Bank signals strategic shift in Indonesia with profit rebound

KB Kookmin Bank is expected to push for a breakthrough at its long-struggling Indonesian subsidiary, KB Bank, with a change in leadership this year. Accelerating the shift, the unit returned to profitability in the first quarter.

KB Bank President Director Lee Woo-yeol is set to step down at the holding company’s shareholder meeting scheduled for May 28 at its Seoul headquarters.

The bank is reportedly considering appointing an Indonesian national as Lee's successor. If confirmed, it would mark the first time a local figure has led the unit since KB Kookmin Bank secured management control of the Indonesian lender in September 2020.

Lee, who previously served as Chief Information Officer at KB Kookmin Bank, was appointed to the role in May 2022 to oversee the digital transformation of the unit.

Having wrapped up the primary digital shift with the launch of Next Generation Banking System and its system migration in April, the Indonesian unit is gearing up to seek other growth drivers.

The incoming chief is likely to push for the expansion of retail banking, backed by its solid network on Indonesian soil, and support KB Kookmin Bank in setting up a holding company in Indonesia.

KB Kookmin Bank is currently working on a plan to establish a holding company in Indonesia, following an announcement from Indonesia’s independent financial regulatory agency, Otoritas Jasa Keuangan, in December. The OJK requires the bank to complete the planning by June.

Adding momentum to the restructuring efforts, KB Bank reported a consolidated net profit of 352 billion rupiahs ($21 million) in the first quarter, a sharp turnaround from a net loss of 827 billion rupiahs during the same period last year. The unit attributed the turnaround to an 11.19 percent increase in net interest income.

The unit also reported “notable improvement” in asset quality, with its nonperforming loan ratio -- a key metric used to measure the level of the bank's credit risk -- improved to 9.1 percent from 9.92 percent. A nonperforming loan refers to a loan where the borrower fails to honor the payments.

“As the figures are preliminary, they would have to be finalized through the group’s consolidated financial statement. But overall, it is safe to say KB Bank has returned to profitability in the first quarter. The goal is to post a full-year profit,” a KB Financial Group official said.

The Indonesian unit had long been a drag on the Korean lender's global expansion strategy. Though KB Kookmin Bank has put in a total of 1.5 trillion won ($1.05 billion) in the unit through equity acquisitions and capital raises over the years, the unit has not yet logged a yearly profit since 2018, when KB Kookmin Bank first acquired its stake.

With the recent turnaround, KB Kookmin Bank is expected to report a profit in its overseas operations in the first quarter of this year, though official figures have not yet been released.

While KB Kookmin Bank posted a 96.2 billion won net profit from global operations in the first quarter of 2023, it fell into a net loss of 2.56 billion won during the same period last year, primarily due to losses from the Indonesian unit.