Kiatnakin Bank Public Company, headquartered in Bangkok, Thailand, goes well beyond standard commercial banking. Founded in 1971 as Kiatnakin Finance and Securities Company Limited and later listed on the Stock Exchange of Thailand, it was transformed into a public company in 1993. Since 2012, when Kiatnakin Bank Public Company Limited and Phatra Capital Public Company Limited merged, the firm has offered a broad selection of financial and investment products and services. With 65 branches nationwide and alternative service-distribution channels, it has a wide and pivotal coverage in a nation of approximately 70 million people and is well on its way to achieving its mission “to provide resources to clients properly, adequately and proficiently through services beyond expectation and like none other”.
Mr. Klewpatinond, thank you for joining us today….
Mr. Aphinant Klewpatinond, Chief Executive Officer, Kiatnakin Bank Thailand
One of the bank’s corporate values is “coexisting like living in a traditional Thai village”. Can you describe in more detail how this works?
As banking is essentially a service business, it’s always our people with their dynamism who determine our success. To that end, the “traditional Thai village” way of living, which encompasses the following elements—working together, sharing the rewards, looking out for danger, paying respect to the old and kindness to the young, banishing the crooks, and nurturing members to fulfill their potential—is both effective practice and pleasant experience. Living by this value does not allow us to only attract the best talents, but also to place them in an ecosystem of learning, support and meritocracy where our people can both bring out their best productivity and prosper from it. This helps to maximize our competitiveness and serves as the best retention mechanism, which sustains and grows the “village” in a way that is wholesome for all involved.
Over the past five years, your profit has quadrupled, with your main strategy focused on maximizing profitability rather than market share. The bank also recently decided to conduct an “enhancement” of its risk-management roadmap. What are the aims of this enhancement?
During the past five years following the merger with Phatra Capital, Kiatnakin Bank has been focusing on synergizing the operational structure and business models of the merged entity. Our vision is to be the best in the business that we choose to be in. Given the scale disadvantage, to realize our vision, we need to be extremely focused on and selective of what battles we should be fighting. We are not competing in areas where size would put us at a disadvantage. Rather, we look for areas with the highest chance of winning and leverage from our client base and competitive advantages in capital markets. We have revamped our risk-management process and added new products, platforms and channels. These have made possible the turnaround and transformed us into a data-driven, fact-based organization, which is highly capable of making rational and well-informed decisions.
In summary, our business is driven by profitability, not market share. Rather than focusing on loan growth or expanding the size of our portfolio, which might imply fixed cost in branch construction and staff compensation, we have been building our capability to squeeze maximum profit from any given portfolio through more rigorous data analyticsand risk-management processes. For the past five years, while there has not been a significant increase in the size of our loan portfolio, our profit has jumped fourfold from THB 500 million in 2014 to THB 2,008 million in 2017. Furthermore, as we have been the first bank to reduce the number of branches and expand alternative service-distribution channels, the leads generated through these new sources coupled with our thorough risk-management and data-analytics processes will provide for a healthy and profitable growth of loan portfolio in the long run. For instance, being a data-driven organization, we can identify which sub-segments of auto-hire purchase products are profitable or loss-making, allowing us to price more accurately according to the segment’s risk profile or even abandon certain segments where the risk/reward profile is not promising.
Despite our small asset size, our growth is among the best in the industry, with our ROA (return on assets) ranking first and ROE (return on equity) at second. In just the first four months of 2018, our loan portfolio grew 7.3 percent, and our AUM (assets under management) increased from THB 182 billion in 2012 to THB 447 billion in 2017. Therefore, achieving high performance in terms of ROA and ROE and sustaining growth will be our first targets for the next 12 to 24 months.
I think being niche allows us to prioritize and concentrate our limited resources more efficiently. The remarkable performance is the result of continuous planning and hard work during the past five years. In addition, we do believe in investing for the future, and are not driven by short-term performance. We are willing to explore new business, develop new channels, adopt new technology and invest in human capital, despite higher operating expenses and lower profitability in the short-run. Together with clear vision and well-thought-out strategy, we think this will serve as a solid foundation for the sustainable growth of the organization.
What is the greatest benefit to have directly resulted from the merger between Kiatnakin Bank and Phatra Capital Public Company Limited in 2012? For example, the bank now has a significant presence in the realms of investment banking and capital markets. How mature would you say these markets are within Thailand?
The merger that took place in 2012 was a share-swap transaction between Kiatnakin Bank and Phatra Capital, which is a holding company housing capital-market businesses. As a result of the merger, Phatra Capital is a wholly owned subsidiary of Kiatnakin Bank. Phatra Capital, in turn, owns Phatra Securities and Phatra Asset Management.
Phatra Securities’ private wealth team expanding its leadership position by launching “Global Investment Service”
Despite operating various businesses through different legal entities, we have arranged a management structure across companies to support collaboration and achieve the highest synergies among related businesses. For example, our private-bank business is operated under various departments both at the bank and Phatra Securities, as well as Phatra Asset Management. The way we break silo and achieve collaboration is to have all related units across entities report to the same head.
The merger has mutually benefited Kiatnakin Bank and Phatra as both entities are quite complementary in their natures in all business areas. Kiatnakin Bank possesses larger capital and individual client bases, whereas Phatra is renowned for its capital-market expertise both in investment-banking and private-banking businesses. Client referral, capital utilization and centralized resources planning have been efficiently managed and deployed to achieve synergy. Examples lie across multiple business areas. First, our private-bank position has been strengthened through a more complete product offering, such as Lombard lending, FX (foreign exchange) and high-net-worth insurance, which Phatra as a securities company is not allowed to offer. Our proprietary investment capability is also enhanced through a stronger capital base, allowing us to diversify our revenue streams and generate healthy ROE. Finally, our strong relationship with large corporates via our investment-banking business can be extended to wholesale-lending transactions, enabling us to provide more complete solutions to clients on top of mere advisory services.
Kiatnakin Bank heralding the ‘KK Magic Mirror’ technology to enhance service while maintaining the charm of human interaction
Moreover, the synergies do not only allow us to achieve satisfactory incomes and returns, but also strengthen us to capture growth in the growing businesses, namely private banking and wholesale- and investment-banking businesses. We have identified the private bank as a star business with high growth and have been pouring extensive resources into this area for over a decade. We believe we have a first-mover advantage and have positioned ourselves to be the best domestic private bank in Thailand. Further, the environment has been supportive for future growth, with clients becoming more sophisticated and regulations, especially on offshore investment, being more relaxed. I believe we are well-placed to capture such growth.
Likewise, for the wholesale and investment banking, I believe there is still a lot of room to grow. Over the last decade, corporates have been tremendously enlarged and are now seeking opportunities to expand abroad. This poses great opportunities for M&As (mergers and acquisitions) and related financing. Since corporates have outgrown financial institutions over the same period, for banks to offer only lending products would be insufficient. Banks equipped with capital-markets and investment-banking capability will prosper, as not only can such banks serve clients’ needs better through capital markets, but risks on the banks’ part are also reduced by turning lending into capital-market products, which in turn leaves the banks room for more lending.
You have been CEO of Kiatnakin Bank for about two and a half years. What do you consider to be your greatest achievement, and your greatest challenge? And what is the one personal quality above all others that enables someone to become a successful leader?
To be the best in the world nowadays largely requires specialization. This is especially true in complex, people-oriented organizations where both synergies and conflicts can occur just as easily. Leaders of such organizations, therefore, should not just play a leading role, but rather serve as a tool for resource optimization, integrate team efforts, solve issues and allow autonomy for the team to do the jobs they are positioned to know better than anyone else.
What I consider to be the greatest achievement and challenge as a CEO are related to human capital. What I have done well is recruiting the best team, putting the right people in the right jobs, retaining them well, expanding the talent pool and, finally, terminating those who do not fit. Since taking a leadership role, the new team has been formed. Over 80 percent of the management committee members at the bank are new recruits; as well, the one-down teams are mostly new joiners. I strongly believe that having the right team has been pivotal in the recent turnaround of the firm.
Kiatnakin Bank dispatching ‘KK Money Station’ or mobile lending trucks to extend coverage to clients
But having a large pool of high-caliber people is also a challenge. They are not the easiest group of people to be ordered or managed. I must make sure that they have enough autonomy yet must be working towards common goals. As easy as it may sound, it is the most difficult job which I am trying to accomplish even now.
According to the bank’s 2018 targets, you are aiming for loan growth of around 10 percent this year. How achievable do you currently believe this target is, as we are in the third quarter?
As of June 30, 2018, we already captured our target loan growth of 10 percent. Therefore, we have moved up the bar for 5 percent more growth for the year. Such loan growth is the highest among Thai banks for the same period. The growth has come from diversifying products and not concentrating on just one or two areas; some are loans that we had not previously offered. We have leveraged the group’s strengths—especially in the wholesale-banking business, developed new acquisition channels and utilized solid risk-management approaches in supporting the loan growth, which allows us to achieve not just a market-share increase but a healthy and profitable growth.
Thank you for your time today, Mr. Klewpatinond. I have every confidence that you will achieve your targets.