Kookmin Bank is seeking to strengthen its position as South Korea's leading domestic custodian by winning more local insurance and pension clients, strengthening its international offering and striking more custody partnerships.
Recent wins for the firm include a first custody mandate for Korea Post’s insurance fund, signed in June. It was also chosen late last year as a custodian by US insurance firm MetLife.
These deals reflect Kookmin’s focus this year on the insurance and pension markets, says Lee Sang-Bum, head of foreign custody. He notes that insurers want “value-added services” such as securities lending and cash management, on top of the standard custody offering.
Kookmin had W33.9 trillion ($29 billion) in life insurance (special accounts) assets under custody as of July 31, almost half (46.7%) of the industry total and close to triple the AUC of its closest rival, Hana Bank.
Kookmin also has the biggest market share (16%) of the W438 trillion of investment trust AUC. That said, its market share of investment fund asset custody has fallen slightly from 17.7% in November 2011.
The bank had lost the National Pension Service, Korea’s biggest asset owner with $306 billion in AUM, as a client in 2010, having been one of the fund’s three custodians since 2004.
The big Korean institutions open their custody assets to a bidding process every two or three years, notes Lee. NPS, for example, tends to use three custodians on a rotating basis, depending on the outcome of a competitive pitch, hence it could potentially re-hire Kookmin in a couple of years’ time.
Meanwhile, Kookmin is moving to expand its international business by working with more global custodians. It struck a partnership in April with JP Morgan to add to those it has with BNY Mellon and HSBC, for whom it acts as a sub-custodian for Korean assets, while the US firms provide global custody services for Kookmin’s clients.
In addition, the Korean bank last month completed a project it started last year to upgrade its domestic custody services and systems to global standards, says Lee. The aim is for Kookmin to meet the high level of requirements by potential clients such as big asset owners or global players.
The bank is in talks with existing and potential partners on an ongoing basis, he adds. “Maybe next month we will again review our services and systems, and this will happen every few months.”
Kookmin also has contracts with sub-custodians in China for its domestic clients with qualified foreign institutional investor (QFII) licences that allow them to buy mainland securities onshore. These are Agricultural Bank of China, Bank of China and China Construction Bank; ICBC will be the next to come on board.
Kookmin is also to have more contracts with international investment banks and global custodians as a sub-custodian, says Lee, and many central banks are looking at investing in Korean Treasury bonds (KTBs).
Several central banks, including one Asian entity, are already using Kookmin as their custodian for the Korean market. The bank is also talking to state organisations in other developing countries, such as in South America, that are showing interest in KTBs.
“The dollar and euro are not so stable these days, while the Korean won is still strong and so is the domestic economy, and bond returns are still good,” notes Lee. Korean interest rates on one-year deposits were around 3-4% in late August.
He also points to Kookmin’s A/A1 rating (S&P/Moody’s) as an advantage – the same rating as the Korean government – particularly given the downgrades that many international financial groups have suffered post-crisis.