[New Year's Message] Jung Young-chae, CEO of NH Investment & Securities, "Limitations of Asset Growth... Must Focus on Customers"

Jung Young-chae, CEO of NH Investment & Securities (Provided by NH Investment & Securities)

[Asia Economy Reporter Minwoo Lee] Jung Young-chae, CEO of NH Investment & Securities, announced customer-centric growth in his New Year's address on the 2nd. This decision was based on the judgment that the existing method of significantly increasing assets to boost profits has reached its limit due to capital regulations. CEO Jung pledged diversification focused on customers. As customers increase their investment assets and diversify into overseas and alternative assets, the plan is to offer various digital services accordingly and proactively provide competent advice to customers. Below is the full text of the New Year's address.

◆ New Year's Address 2020

Dear NH Investment & Securities partners, hello.

The new year 2020 has begun.

I hope that all the wishes you hold in your heart at the start of this year

will come true.

This year, following last year, the global economy is expected to continue its downward trend,

and the effects of investment and export slowdowns are expected to spread to the domestic economy,

presenting a bleak outlook as we face the year.

However, our industry is different.

In a low-growth environment, the needs for asset management and asset operation will grow even more,

and with changes in production and consumption patterns and the spread of the sharing economy,

the need for corporate business structure reorganization is greater than ever.

Over the past two years, we have achieved many changes and progress.

The scale and structure of our business have changed significantly,

and above all, our perspectives and ways of working are evolving.

We are focusing on the ‘customer’ more than ever.

We think about what customers want,

what the best solutions for customers are,

and we value the process of creating results as much as the results themselves.

I sincerely thank all employees who have worked hard to make these changes possible.

I am also pleased that we recorded the highest profit performance in history during this process.

However,

if we ask ourselves whether we can continue this growth in the future,

it is difficult to answer confidently.

Whether we can grow together with customers

and secure and maintain our status as a leader in the financial investment industry

that continuously creates value with at least 10% ROE,

and how we should do so, has been a long-standing concern,

and we have had intense discussions with each business division over the past eight months.

Today, I would like to briefly share with all employees

the process of our deliberations and the direction we will take.

Over the past decade, the financial investment industry

has shifted to a structure that uses a lot of capital and risk.

Whereas before we were simple intermediaries connecting capital demanders and suppliers,

we now actively invest capital ourselves and bear risks

to create differentiated products and solutions.

Although the ROA of large firms has fallen from 6.5% to around 2.5% due to business model changes*,

the top five securities firms have increased assets significantly to offset this and grow profits. *Based on net operating income

However, it is now difficult to grow further using this method.

As asset returns gradually decline,

the scale of assets is approaching our limits under capital regulations.

Competitors are making efforts to overcome these limits by expanding overseas

or differentiating product and channel competitiveness by leveraging affiliate synergies.

A new growth method different from the past is needed.

The more fundamental change lies with our customers.

Our customers, who must prepare for a low-interest environment and longer retirement,

are increasingly concerned about wise asset management.

They are increasing investment assets and diversifying into overseas and alternative assets.

However, customers who can easily access information and channels through technological innovation

are demanding personalized services that respond immediately to their needs,

and we now face ICT platform companies as competitors.

Also, in a low-growth phase, our companies expect us not only to help with capital raising for growth and expansion

but also to be strategic partners who can share concerns and create deals during business restructuring or new business development.

It is time to redefine our role and attempt a completely new relationship with customers.

Fortunately, the future market we will face is quite bright.

Although Korea’s economic growth rate has fallen to the 2% range,

household financial assets are growing at 6.7% annually, exceeding 4,000 trillion won,

and especially, financial assets of high-net-worth individuals with over 1 billion won

are growing rapidly at 11% annually.

As the industrial structure shifts from heavy and large-scale industries requiring massive facility investments

to ICT industries with smaller physical capital input,

the need for business structure reorganization is surging.

The domestic M&A market size has grown from 23 trillion won in 2008 to over 50 trillion won recently,

and acquisition financing has surged from 5 trillion won in 2014 to 20 trillion won recently.

However, this market growth does not directly translate into our profit growth.

We must consider our new position and role in line with the market structure reorganization.

With technological innovation and big data utilization,

traditional low-margin, high-volume industries are being replaced by digital platforms.

Virtually all industries are polarizing into smart platforms offering cost-effectiveness

and premium services that satisfy individuals’ special needs.

We have already witnessed the most beloved retail channel, large discount stores, turning to losses,

and the market splitting sharply into online shopping malls and premium offline channels.

The financial industry and capital markets are no exception to this trend.

The simple brokerage market will be largely replaced by digital services in the near future.

Even corporate finance businesses, which seem distant from digital innovation, are not exempt.

Online corporate bond issuance platforms led by global IBs are being created,

and overseas P2P platforms are evolving into funding platforms with institutional investors and SMEs joining.

We need a more proactive response to digital channels, which customers increasingly prefer.

Customers demand digital services that recognize them without direct contact or verbal communication,

and provide services at the desired scope and level at economical prices.

We must be better prepared than anyone else to do this well.

Whether digital channels or premium channels,

the essence of our service does not differ.

We are already walking a different path from our competitors.

We are not brokers trying to generate transactions,

but advisors trusted and sought first by customers,

working to build long-term partnerships with customers.

An advisor must be an expert on the customer.

Regardless of the channel through which we meet customers,

we must understand individual customer needs properly,

and perhaps even anticipate needs they are not aware of,

to propose the most optimal solutions.

We must be not just a butler entrusted by customers,

but a consultant whom customers seek advice from and a competent problem solver.

This is a major change that changes the league.

Although we have now taken the first steps,

there is a long way to go and much to accomplish.

To provide value to customers,

we must have suitable products and solutions to propose according to customers’ goals.

Our product and solution infrastructure is somewhat established,

but it needs to be more refined and the spectrum expanded.

To provide competitive products and solutions,

we source products directly from the market

and also source and structure assets.

In this process, we use books.

We use books totaling 52 trillion won company-wide.

As books have become the most important limited resource in expanding business,

we need to first establish criteria on how to use books.

So far, we have viewed the book business only by the size of operating profit and loss.

However, along with output size,

input level and opportunity cost must also be considered.

Considering our vision as the No. 1 platform player in the capital market,

our resources should be primarily invested in providing products and solutions for customers

rather than generating profits from books themselves.

Dear employees,

We are now walking a path no one else has taken.

We are doing similar work to others,

but we are postponing immediate profit opportunities to meet customers.

We are running for results that customers will be happy with in the future,

even if it means sacrificing immediate gratifying outcomes.

We live in a world that emphasizes innovation more than ever,

and AI and data help find optimal answers,

but ultimately, what moves customers

is our consistent care, effort, and sincerity.

When customers willingly pay and happily seek us out,

we become meaningful and differentiated value.

If we change our thoughts and actions ourselves

and stand alongside customers to work for them,

we can grow together with customers.

No matter how much the world changes,

the destination of the path we take does not change.

We are partners who help customers achieve their desired and needed goals,

and we are building capabilities and systems to do this better than anyone else.

If we can walk this path better and faster than anyone else,

the challenging growth goals we have set are not far away.

Know who your customers are

and focus only on creating value for them.

Every step we take in customer value

will reach customers’ hearts and be the start of rewarding change.

Our different minds and actions will result in different outcomes.

I will lead the way on this path

and accompany you through the process. Thank you.

January 2, 2020

This content was produced with the assistance of AI translation services.