(Part II of III) Conversation with Lee Soon Woo, CEO of Woori Bank, on growing fee-based income while going easy on fragile customers
Here is the transcript of the video.
1. Attempts at privatisation of Woori Bank
Emmanuel Daniel (ED): In terms of milestones, where are you today?
Lee Soon Woo (LSW): Originally, Woori Bank merged with the Commercial Bank of Korea and Hanil Bank but with corporate banking remaining a core business. Even though the International Monetary Fund (IMF) crisis was a tough period for us, Woori Bank had been among the best banks in South Korea. I believe that there are 2 core confidants for a bank to be successful. One is the competence of its employees and the second is the portfolio of our clients. During the IMF crisis, the public showed strong will to overcome the situation. That is what brought the Korean economy to where it is today. In that context, the competence of employees is important to the bank. Another important factor is the trust and loyalty of our clients.
ED: How would you describe the politics in Korea after the 1997 crisis and why was there so much confusion in terms of how to protect Woori Bank, maybe the most important bank in Korea? What was the process that caused this kind of confusion on the political side?
LSW: Having gone through the IMF crisis, we opened our capital market to foreign investors. There have been some foreign investors and there is still some market share. Koreans made deposits and believed that the money may be used as investment in the corporations within the county. There isn’t any special policy which is different to that of other countries involved after the IMF but foreign investors saw the difference made in the banks, corporates and our people. That is the reason they made investments in financial institutions in Korea. There are still government shares within Woori bank. It has not been privatised but with the strong will of our nation, the national public and our employees we can overcome the current situation. Internally, our employees’ selling capabilities, commitment to recovery and preventative risk management has made what Woori Bank what it is now.
ED: In terms of Woori Bank’s government shares, is there intention to fully privatise or increasingly-privatise Woori Bank in the near future?
LSW: There is desire to privatise internally not only from both from our clients and employees but also from the government. However, during the IMF crisis there were negative feelings toward such an investment from the public. There have been two failures in terms of privatisation with the main issues being how to do it. But the government has expressed its desire to privatise the bank by yearend, and with new measures. There are two issues at hand. Firstly, is the pricing, because as investors, you have to be attracted to make an investment in Woori Bank. Secondly, to set out the process which satisfies the conditions set by the government in terms of the privatisation. These are two issues under resolution now and I think we can make it this time.
ED: In terms of stabilizing your business model, I noticed that you have made a shift to consumer funding, with consumer lending one of the pillars of your business. What are some of the activities being conducted to stabilise the business model so it is not dependant on the big shift in corporate lending?
LSW: Through the IMF, we realised there were the greater risks in dealing with corporate clients such as construction and shipbuilding companies, and other big enterprises, so we turned to retail clients to build our retail base. We have established a strong retail business covering the risk from corporate clients. If we obtained the retail client base, it will create a synergy effect which is very important to corporate and retail banking. Before, we used to focus on the lending to corporations and borrowing from the corporations. That was the only corporate banking business we did, but we’re now trying to provide retail services to individual employees and contractors of corporations. We also target the employees of corporate customers’ partner companies and their CEOs, so we know their employees’ and CEOs’ transaction activities. We realised that retail banking would be of help to corporate banking in helping weaker companies. This creates a synergy that allows us to expand our retail client base so we could offer additional services in terms of corporate banking.
2. Use of capital and basis of finance
ED: In terms of the efficient management of your capital, what is your most important priority at the moment?
LSW: I believe the basis for finance is helping and assisting another corporation to survive. Considering this function of banks, non-performing loans (NPL) can be increased when banks stay with those corporates in difficulties. In that regard, I don’t worry about the NPL ratio of Woori Bank. In order to cover the NPL ratio, we aim for companies with good credit standings. As for weaker corporate clients, such as the construction and ship-building companies, we want help them survive. Hence, we should provide liquidity. To do this, we need money and a healthier corporate client base. For the past year, we have had more corporate clients that are in good standing. There are concerns that we are exposed to risk as well as mergers and acquisitions (M&A). We are managing risk as it is unavoidable. We are focusing on helping weaker corporates. Not only do we offer lending to our clients, we offer consulting as well, helping companies better manage their risks.
As for the M&A issue, it is one of the basics of privatisation for a bank to stay healthy. We are increasing our value by having more companies in good standing and which drive employees’ sales capabilities. I don’t agree with the fact that Woori Bank is exposed to risk due to possible M&A options. I believe a certain percentage of NPL has to be carried on to help corporate clients survive. However, we do prevent NPL increase. I am focusing on better managing NPL and the bank’s risks. To remove risks, we should get the corporates recovered. Every corporate is exposed to risk and has its own strengths and weaknesses. We should support the strengths and complement the weaknesses so that we can lead and let our clients, the corporates, grow actively.
ED: What are some of the targets you have set in terms of increasing your fee-based business to reflect in new areas, such as wealth management, as well as advice for your corporate customers?
LSW: Regarding the fee-based business, we lowered our fees for retail clients last year, targeting the Vietnam and Korean war veterans and their families, as well as students in financial difficulties. We didn’t charge any individual transaction fees for these retail clients. Currently, the fee based business account for 17% and we are aiming for 25% from middle and long-term perspectives. But there is a limitation in terms of increasing our fee based share because a bank should not only focus on increasing its revenue but on assisting our clients as well. A bank has to have the characteristics of a social enterprise. We cannot completely turn away from criticism from the public. Rather than focusing on fees from ATMs and transactions from the needy or everyday consumers, receiving the fee after a corporate turns healthy is more desirable.
What we are driving at now is, instead of digging our retail customers’ pocket for the fees, we go to the corporate banking side. We want to create additional fee-bases from our consulting services for corporates. As for investment banking, there were some issues during the IMF and 2008 financial crises, but this is a sector where we should be creating additional value in terms of the fee base too.
ED: What is the current contribution of your international business? Do you have a new target for it in terms of total business?
LSW: Our international business stands at 5% from total assets and 7% from revenue. Our targets are countries like China, Vietnam, and Indonesia, where we are advanced in terms of financial services so we can provide value to local customers and create additional revenue. In order to stabilise our international operations in those countries, we are focusing on localisation. It is not only English skills that are required, but also local languages and talents that are needed, to be successful in the respective countries.
ED: There is focused desire for Woori Bank to be among the top 10 banks in Asia, and top 50 in the world by 2016. What are your plans to achieve this?
LSW: Until now, we didn’t have a target, this partly due to the state’s ownership, but I think the objective can be achieved. It is true that we paid the cost, focusing on corporate banking for shipbuilding and construction. In 2008, the IB sector brought us loss due to issues with derivatives. All those experiences came because we were not ready. If we didn’t have NPL, we could possibly be ranked amongst Asia’s top ten banks. We will do our best to recover in terms of NPL and provide consulting to lead our corporate clients to success as well as strengthening our retail and international businesses.
Woori Bank has is strong in terms of sales and marketing. On top of that, we have the system and infrastructure ready. As long as we have the system, infrastructure, and employment competency, you can’t rule us out. What we need is direction. Our target may seem a bit steep but I am confident we can do it.
3. Woori Bank’s China strategy
ED: What is your China strategy? Do you want to be a dominant player in China? What is you leadership style?
LSW: Our Chinese operations are the most highly localised. Currently, local clients account for 75% of our local base in China. We chose China because we can provide advanced services and products for the local clients. We also plan to expand our network in the country with more services and products. Our localisation in China is not only in terms of clients, but also in terms of employment as we look to hire more local talent.
Regarding my leadership style, I prefer to say that I am a humble servant. I believe in taking action and becoming a role model the rest can look up to. The two key points that I think are the most important are firstly, the satisfaction and happiness of our employees, and secondly, obtaining trust from clients.
ED: Woori Bank has a strong retail banking background. Are you a retail banker looking at commercial banking or are you a commercial banker looking at retail banking?
LSW: I was fully engaged and in charge of the intensive work-out process during the IMF crisis for three years. My retail specialty was acquired after that, when I became the vice president. Corporate banking is not merely about providing funding to and building relationships with corporates. It is also about helping them and leading them to good standing. If there are companies in alarm, your role as a corporate banker is to prevent them from getting worse and to improve them. I believe clients will come to us when the bank takes its fundamental roles and responsibilities to the next level. So I don’t believe there is a distinction between the retail and the corporate sectors. My justification is that you need to assist your clients to overcome hardships. I think the core quality of a bank is to become a good doctor and be able to heal one’s patients. To do this, we need to balance retail and corporate. If the core corporate banking functions and services perform well, the retail sector will follow.
