Banks fortify asset management services
Local commercial lenders are ramping up efforts to fortify asset management capabilities, in order to identify long-term stable sources of non-interest income.
Chief among them are management of pensions to the tune of 200 trillion won ($150 billion), followed by real estate, trust and tax services - areas that can generate handsome performance-based fee income.
Advancing the collective move is mounting criticism of the banks’ irresponsible sales of intricately structured financial derivatives notably exchange-linked securities (ELS) tied to the performance of Hang Seng China Enterprises Index (HSCEI).
According to market sources, Kookmin, Shinhan, Hana and Woori banks are continuing marketing campaigns to land a greater number of individual retirement pension (IRP) customers.
IRP is a retirement pension plan whereby subscribers can receive dividends from investment vehicles of funds or exchange-traded funds (ETFs), as well as regular interests from savings accounts. Their volatility exposure is relatively limited, as buffered by the investment of their severance pay in risky vehicles being limited to 70 percent of their portfolio. The fee for IRP-specific investments is lower compared to that of other financial products.
Korea’s banks-operated retirement pension market managing employee severance pay came to 198.4 trillion as of last year, up 27.2 trillion won from a year earlier.
Competition will become fiercer this year, since the new rule set to take effect in April can push up their income from fees tied to the number of new subscribers and the performance of default IRP products.
“We are running promotion campaigns whereby gifts such as Apple Watch and Galaxy 24 models will be provided to new customers that subscribe to the target-date funds and default option portfolio products,” a KB official said.
Woori and Shinhan are running similar campaigns. “IRP is emerging as one of our most stable non-interest income sources,” a Woori official said.
Kookmin is operating a post-retirement life plan encompassing the management of payments from state-run pensions and private pensions as well as tax services.
The bank opened the Golden Life Center where face-to-face services are available. A webpage Golden Life X provides online services.
They are also bolstering services related to real estate investment.
Shinhan launched a real estate asset management service March 4 on SOL, its online platform.
A simulation of asset trading informs the user of the estimated brokerage fees as well as capital gains tax and gift tax, depending on the needs of the users in a variety of scenarios.
Also provided is jeonse market analysis including market prices, the amount of deposit, interest rates and the maximum amount of loans borrowable with loan-to-value ratios factored in. Unique to Korea, jeonse is a home renting system whereby tenants pay a lump-sum refundable deposit instead of monthly rent for the term of the contract.
“We plan to expand services to include the issuances of real estate-related papers and a one-stop mortgage loan services,” a Shinhan official said.
Hana provides a face-to-face private banking service for its customers with a deposit of at least 100 million won. Hana OneQ, the bank’s online app, began the service last month.
Woori has hired Ham Young-jin, former head of the Zigbang, a real estate market data service provider, as head of the research lab department at the bank’s asset management consulting center.