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South Korea Haengbok Bancorp

A small nationwide Korean
Bank Customers: SMEs with some international operations Haengbok Bancorp Opened the first
foreign branch in New York
Objectives:
Fulfill the goal to be an international bank
Allow the bank to provide better support to its Korean partners and generate additional business
from primarily US-based-Korean owned businesses
To be better informed about worldwide banking trends New York External Environment
Threat:
Fierce competition for US-based Korean customers
Opportunities:
Many businesses were having difficulty raising capital as a result of financial crisis
New York is the largest US money center, relatively high concentration of Korean-owned and
oriented businesses The USA Action Control Result Control Personnel & Culture Control Mr.
Kim
Experienced account manager in Seoul
Senior Manager in New York branch Procedures for approval of loan application
<1 million, approved by Mr. Kim
1-5 million, approved by branch credit committee
>5 million, approved by headquarters credit committee
Preaction review: scrutiny of proposals
Prevention nature
Pros:
Double Approval to reduce loan risks
Cons:
Time-consuming: may take a long time to approve
Problem of independence: 2 most experienced account managers are in the committee
Little involvement for branch account managers: Headquarter may not understand the US market
and make wrong judgment Mini profit center
credited with the interest earned on the loans initiated
charged for the expenses incurred(E.g. cost of funding the loans)
Accounting Measure Result Control

Pros:
Encourage entrepreneurship
Freedom
Comprehensive Incorporate different aspects of performance
Precise and Understandable
Cons:
Conflict of interest - Expenses incurred directly affect the bonus of account managers Cash
Bonus
10% Cash Bonus based on the profit of mini profit center
Cash bonus will distribute shortly after year end
No punishment if loss incurred
Pros:
Motivation - Incentive to boost revenue and reduce cost
Cost effective
Bonus system: precise ; objective ; understandable ; controllable
Cons:
Encourage manipulation (shift profit to next year)
Encourage risk-taking
No / Low retention
Cash flow problem due to distribution of cash bonus Personnel Control Regular review
Regular review by management, national bank examiners and external auditors
Pros:
Identify potential problems (E.g. declining business conditions, violations of covenant, and
missed payments) Job assignment
Assigned by geographic locations
Assign two account managers to develop opportunities with prospective clients in industry that
they had prior experiences
Pros:
Concentrate on specific location
Make use of their prior experiences to develop specific industries
Cons:
Conflict - Responsibilities may be overlapped with those assigned by geographical location

Personnel Control Recruitment process

Recruit by Jae only
Hire experienced managers with track records of success
Pros:
High efficiency in recruitment process
Managers are experienced in US banks
Different people bring new ideas
Cons:
Cannot cooperate together due to various operating styles
Inadequate consideration before hiring Culture Control Result-oriented culture
Senior manager(Jae): Did not care how they identified and cultivated their clients as long as they
eventually booked good deals
Pros:
Flexibility
Cons:
Not specific
Not understandable (Meaning of good deal ?) Result-oriented
Remuneration directly links to profit generated
The instructions made Kim only cares about the result
Decentralization
Only a few and not well-defined action control
Almost no supervision on how the work is done
Each account manager work independently like a small and separate business. Management
Philosophy Pros
Provide more incentives to account managers
Help achieving the branchs objective to grow rapidly
Develop the full potential of each account managers
Cons
Encourage the account managers to take risk
No communication between Kim and the account managers
No retention
Pay cash bonus
Conflict between personal interest and companys interest Management Philosophy People

control
Recruitment procedure:
Set up human resources department for recruitment
Establish a comprehensive recruitment procedure
Consider other factors in evaluating the suitability of candidates
Job allocation
Allocate work by industry instead of geographical location Suggestion on Control System Action
control
Loan application
Establish a standard loan application package
Instruction on the composition of risk analysis and required supporting documents
Loan approval
Change the composition of the credit committee
To enhance segregation of duties
Remove the two senior account managers and introduce one independent senior staff Suggestion
on Control System Result control
Remuneration package
Basic salary: raise to the level of industry average
Maintain the competitiveness
Bonus: change 10% stock option
Vesting period improves the retention rate of account managers
Induce account managers to consider long term profitability and hence avoid risk taking behavior
for short term profit
No loss penalty
No bonus is already a penalty
External environment affects return Suggestion on Control System Culture control
Goal setting
Set up a five-year goal for the whole branch
i.e. Attain overall certain market share in merchant bank sector

Enhance sense of belongings

Set up short term goal for each account manager
i.e. Attain certain market share in the industry that they are responsible for
Serve as the lower cap for getting bonus
Provide motivation to work harder Suggestion on Control System Establishment of loan
application package
Description of the client and its business, the proposed use of the loan funds, the proposed loan
terms, and an analysis of the loans risk.
Risk was addressed in many ways, but market prospects and the clients financial statements
were always considered.
Behavioral constraints: restrict account managers loan application process
Prevention nature
Pros:
Ensure enough assessment of loan applicants have been done
Efficient way of coordination: Facilitates process of approval
Help accumulate knowledge of US-based-Korean customers
Cons:
Not specific enough. Manager may use favourable analysis to get approval Action Control Recuit
by himself Hire experienced managers with track records of success
Pros:High efficiency in recruitment processManagers are experienced in US banksDifferent
people bring new ideas
Cons:
Cannot cooperate together due to various operating styleInadequate consideration before hiring