1. The Highlight of the Merger

Kookmin Bank (Kookmin) and Korea Long Term Credit Bank (KLB) exchanged the Memorandum of Understanding and formally announced to proceed with the merger of the two banks at the convention center in the Korea Federation of Banks building on September 11, 1998.

Mr. Dal-Ho Song, the President of Kookmin, and Mr. Sei Jong Oh, the President of KLB announced that the two banks have agreed on a voluntary merger to become a super bank which will overcome the adverse changes in the current environment surrounding Korean banking industry as well as play a pivotal role in the future economy of Korea.

Kookmin and KLB have been taking up a leading position in retail & consumer banking and wholesale & corporate banking, respectively. Therefore, no other domestic consolidation could bring about greater synergy effect than the merger between these two banks.

The two banks made a statement that, even after the merger, they will continue their efforts to seek for a strategic alliance with foreign partners in order not only to solidify their capital base but to enhance their operations system to an advanced one. They also stated that they will endeavor to minimize the governments financial assistance for the financial restructuring by maximizing the size of the foreign capital inducement.

2. A New Model of Consolidation

The merger between Kookmin and KLB, both of which are regarded as the best in their respective fields, is the accouplement of a retail specialist and a corporate professional. This type of merger is unprecedented in the history of Koreas banking industry. Unlike the other merger cases which mostly aimed for achieving a cost effectiveness, the combination of Kookmin and KLB is targeted to accomplish the amalgamation of each client base and the diversification of financial products.

This merger will open a new era in the history of Korean banking foretelling the birth of a super sound bank that will lead the banking industry in domestic market and represent Korea in international market. The combination of the funding capability of Kookmin, which has a broad customer base on the basis of the largest branch network in Korea, and the employment expertise of KLB, which has shown the highest productivity in Korea on the basis of small number of staff, is anticipated to have tremendous potentials.

Merger Type

Cost Reduction / Volume Expansion

Business Diversification / Integration


  • Branch network coordination
  • Staff redundancy slimming
  • Size expansion
  • Economy of scale

  • Business areas integration
  • Combination of the width and the depth
  • Diversification and integration
  • Economy of scope
  • Case

    • Hanil + Commercial Bank of Korea
    • Hana + Boram

  • Tokyo + Mitsubishi
  • Kookmin + KLB
  • Key Point

    Restructuring through the closure of redundant entity

    Synergy maximization through integration of know-hows

    3. The Positive Outcomes of the Merger

    Through the merger, the new bank will become the largest capitalized bank in Korea with their combined equity of KRW 3.7 trillion as of the end of June 1998. As for the size, it will rank the 1st, followed by Hanil-Commercial Bank of Korea, with the collective assets of KRW 100 trillion as of the same date.

    However, according to the financial analysts, volume expansion has little importance in this merger between Kookmin and KLB, compared with the synergy effects from complementing business areas.



    Main Business Area

    Retail Banking

    Corporate Banking

    Major Clientele

    Corporate Banking

    Small- & medium-sized enterprises

    Large corporates & conglomerates

    Retail Banking

    Large number of small accounts Mass populace customers

    Small number of large accounts High-net-worth clients

    Staff Employment

    Large staff

    Small staff

    Information System

    Mass transaction


    4. Management Strategy

    The merged bank will pursue the following strategies:

    Transforming the two banks into a new bank in a way to maximize the synergy effect from the merger

    Financing the Korean industries with low-cost funds by leveraging the high credibility of the new bank and its reliable funding sources of mass clientele

    Harmonizing tailor-made services for private banking business and services for mass deposit base

    Enhancing flexibility for the management of the new banks credit exposures by expanding its customer base in corporate banking

    Adopting an advanced system for loan product marketing, credit approval, and loan management

    Establishing a hub & spoke style branch network for highly efficient branch operation

    Introducing a performance-based incentive system by adopting advanced personnel management system and performance-based annual salary system

    The two banks plan to hire a professional consulting firm in order to adopt new systems for effective implementation of the aforementioned strategies for the merged bank.

    5. Major Terms and Conditions for the Merger

    The two banks shall be merged into a new bank based on the principle of one-to-one merger. For the legal and administrative purposes, however, Kookmin shall be the existing entity.

    The merger allotment ratio shall be determined based on market value, reflecting net asset value examined by outside experts.

    A name that best fits the image of the new bank shall be decided, before the date of merger.

    6. Merger Procedures and Schedule

    To implement the merger procedure smoothly, the Merger Steering Committee which is going to be composed of equal numbers from both organizations will be activated from next week. To set up basic management strategies of the new bank and to coordinate business operations, a working-level special task force will also be formed. The new bank will be launched from January 1, 1999, after the valuation on the net asset value of each bank in September 1998 and the following procedures;

    The Resolution of the Board of Directors: no later than September 30,1998

    The Agreement of the Merger: no later than October 1, 1998

    The Extraordinary Shareholders Meeting: no later than November 10, 1998

    7. Summary of Operations

    Kookmin was established as a bank for the general public in 1963 and has grown as a bank specialized in consumer lending and financing for the small- and medium-sized corporates. The bank transformed into a commercial bank with the repeal of the National Citizens Bank Law in 1995. Kookmin is a leading retail bank in Korea with the largest customer base and the largest branch network of 511 branch offices throughout the nation.

    Kookmin has been recognized in the domestic market as a bank with the best credibility with the largest deposit-taking customer base. Especially, the bank has shown a stable trend in its profit even with the dramatic deterioration in financial conditions of Korean corporates since its exposure to corporate financing and international business operation has been minimal.

    KLB transformed itself into a Long Term Credit Bank in 1980 from Korea Development Finance Corporation (KDFC), which was established in 1967 as a private-sector development finance institution to channel term loans of IBRD and ADB. KLB specialized in wholesale-type corporate banking with streamlined staffing, showing the best productivity among Korean banks.

    As an effort to diversify its business scope, KLB focused on developing its private banking business targeting high-net-worth individuals by launching tailored-made banking service campaign. KLB ranked the 1st in the 1997 Customer Satisfaction Survey conducted by the Korea Productivity Center as a result of its efforts to maximize the value for its clients.

    KLB and Kookmin posted KRW 51.2 billion and KRW 6.5 billion, respectively, of net income during the first half this year. The two banks have maintained the BIS capital adequacy ratios above the 8% hurdle upon the audit conducted by the independent auditing companies commissioned by the Financial Supervisory Commission (FSC) in August 1998.

    Kookmin has 10 subsidiaries, including Kookmin Credit Card, Kookmin Data System, etc., and KLB has 5 subsidiaries, including KLB Credit Card, KLB Venture Capital, etc.

    <Financial Summary : Before & After the Merger>




    The Merged Bank

    Total Assets (KRW in trillions)




    Total Liability (KRW in trillions)




    Shareholders Equity (KRW in billions)




    Paid-in Capital (KRW in billions)




    Non-Performing Loans / Total Loans

    1.46 %

    1.01 %

    1.31 %

    # of Employees (persons)




    # of Branches (domestic / overseas)

    511 / 10

    45 / 6

    556 / 16

    Operating Income before Provisions & Taxes / Employee (KRW in millions)




    Net Income / Employee (KRW in millions)





    0.02 %

    0.23 %

    0.09 %


    0.27 %

    3.70 %

    1.54 %

    BIS Capital Adequacy Ratio

    12.00 %

    9.61 %

    11.02 %