KB Financial Group Inc., a major Korean banking group, said Thursday it will push for universal banking as part of efforts to boost profitability in an era of low growth and low interest rates.
Universal banking combines commercial banking with investment services, thus allowing banks to provide a much wider variety of financial services.
"Modeled after Bank of America Merrill Lynch, KB Financial has decided to strengthen its banking and securities businesses," the financial group said.
After acquiring Merrill Lynch in 2009, BoA retooled its operations with a focus on wealth management and corporate investment banking, which has helped improve its bottom line. Its net profit soared to $4.83 billion in 2014 from $4.01 billion in 2008.
KB Financial's move comes after it took over Hyundai Securities Co., a major brokerage house in Korea, in April this year. The push for universal banking is widely seen as resulting from the group's perception that traditional financial products such as deposits have their limitations in enhancing profitability as the country is mired in low economic growth amid ultra-low interest rates.
Indeed, local banks' net interest margin, a key measure of profitability, tumbled to a record low of 1.55 percent in the first quarter of this year. NIM is the difference between the interest income of a financial organization and the amount of interest paid.
Market watchers said there is a high possibility of banks' NIM dropping further down the road following the central bank's rate cut earlier this month. In a policy meeting on June 9, the Bank of Korea unexpectedly cut the key rate to a new record low of 1.25 percent, the first rate reduction in 12 months.
KB Financial said it will focus on incorporating operations related to asset management and bolstering investment banking business. The group also has KB Investment & Securities Co. under its wing.
"Following the takeover of Hyundai Securities, KB Financial will step up efforts to help the public increase their wealth and support corporate growth as well as to create a new environment for the further growth of the local financial industry," KB Financial Chairman Yoon Jong-kyoo said. (Yonhap)
