SEOUL -- KB Financial Group has become South Korea's most valuable financial company, surpassing Shinhan Financial Group which had led the industry for the past decade, thanks to its strategy to strengthen securities and insurance affiliates with aggressive mergers and acquisitions.
Shares of KB closed at 57,700 won on Friday, down 0.17%, giving it a market capitalization of 24.1 trillion won ($21 billion). Shinhan's stock dropped 1.2% to 49,300 won, giving it a market value of 23.4 trillion won. KB was ranked the 10th biggest company in the benchmark KOSPI index, while Shinhan was at No. 12.
It is a drastic change for the country's financial industry where Shinhan, dubbed "the Samsung of the financial sector," had maintained its lead for almost 10 years thanks to high profitability and efficient risk management skills. Shinhan has boasted of its well-diversified business portfolio and leading banking and credit card affiliates.
However, KB managed to narrow the gap with Shinhan by investing in an insurance company and a brokerage house as well as boosting performance in its flagship banking subsidiary. KB acquired LIG Insurance and Hyundai Securities last year, merging them with its existing businesses KB Insurance and KB Securities. KB Chairman Yoon Jong-kyoo led the M&A strategy, stumping up 1.25 trillion won for a 22.56% stake in Hyundai Securities, more than three times the market price.
Analysts said that for the April-June period, KB would post record quarterly earnings since the holding company was established in 2008. The market consensus for the company's second quarter earnings rose 12% to 695 billion won.
"KB will benefit from its increased stakes in KB Insurance," said Kim Eun-gab, an analyst at IBK Securities. "We estimated its net profit in 2017 would rise 7.7% to 3.04 trillion won."
Last month, KB increased its stake in KB Insurance to 94.3% from 54.49% by purchasing more shares, and with whole ownership, KB plans to delist the subsidiary from the KOSPI on July 21. Shinhan meanwhile is turning its attention to digital innovation in cooperation with Amazon. Both groups signed a strategic collaboration agreement on Wednesday at the U.S. e-commerce company's New York office, with plans to discuss how to apply digital technologies, such as artificial intelligence, blockchain and the cloud, to financial services.
"Digitalization will decide fate of financial firms in the future," said Shinhan Chairman Cho Yong-byoung in a statement. "We will lead development of the country's financial industry by expanding our cooperation with Amazon further."
The agreement comes as traditional banks face challenges from internet-only lenders which provide financial services through mobile and internet formats. South Korea's first internet lender K-Bank, led by telecom company KT and launched in April, is growing fast and offers lower fees than traditional banking. Internet company Kakao is also planning to start offering banking services from August through its Kakao Bank arm.