The Industrial Bank of Korea will begin receiving brand usage fees from its domestic and foreign subsidiaries. In exchange for using the Industrial Bank's logo and trademark for business operations, the subsidiaries, which serve as practical holding companies, are required to pay a standard fee. However, concerns have been raised that this could increase the burden on the subsidiaries, especially as many are experiencing declining profitability. Last year, the contribution of subsidiaries to the Industrial Bank's net profit of 2.6543 trillion won was 8.5% (226.2 billion won), which falls short compared to the financial holding companies' non-bank sector contributions of 20-40% during the same period.
According to the financial sector on the 22nd, the Industrial Bank of Korea has recently decided to proceed with a study on the 'calculation of small and medium enterprise bank brand usage fees.' The study will include determining the applicable subsidiaries in Korea and abroad for brand usage fees, calculating the rate of the fees, as well as tax and accounting responses and evaluations regarding brand usage fee assessments. The Industrial Bank aims to complete the study by the end of this year, with full collection of brand usage fees expected to begin next year.
A brand usage fee is the money that corporations pay to the entities that hold trademarks and logos in exchange for the right to use them. Payments and collections of brand usage fees are made through internal transactions among subsidiaries and are typically calculated by multiplying the revenue by the fee rate. The fee rate varies widely among companies, but in the financial sector, it is known to be around 0.1-0.2%. However, the National Agricultural Cooperative Federation once faced controversy for charging over 2% of revenue as a brand usage fee.
The largest shareholder of the Industrial Bank of Korea is the Ministry of Economy and Finance, which holds a 59.5% equity stake. The Industrial Bank has nine domestic corporations, including capital, investment securities, savings banks, asset management, and pension insurance, as well as four overseas corporations in China and Indonesia.
While there is no issue with the Industrial Bank of Korea receiving brand usage fees from its subsidiaries, concerns have been raised that this may worsen financial soundness by increasing the burden on the subsidiaries. The subsidiaries of the Industrial Bank have been underperforming, with the exception of capital. Last year, capital posted a record net profit of 214.2 billion won, whereas the savings bank reported a net loss of 54.7 billion won due to non-performing loans related to real estate project financing across the savings bank sector.
Although the pension insurance recorded a net profit of 28.9 billion won last year following deficits in 2023, it faces difficulties in improving profitability under the new accounting standard (IFRS 17), which requires it to only sell savings-based insurance products. The structure relies more on investment profit as a side business to drive net profit than on the core insurance profit. The solvency indicator, the capital adequacy ratio, was 111.5% before the transitional measures were applied at the end of last year, falling short of the recommended ratio of 130%. During the same period, net profits from asset management, systems, and credit information ranged from 2.5 billion to 9 billion won.
Given the poor profitability of its subsidiaries, the Industrial Bank of Korea's revenue from brand usage fees is expected to be limited. If the bank receives a fee rate of 0.1-0.2% based on the revenue of its domestic and overseas subsidiaries, it is estimated to be around 10 billion won.
An official from the Industrial Bank of Korea noted, 'Our subsidiaries are using the brand, so we are generally receiving fees, and we have put out a bid for a service to calculate the appropriate market price for brand usage fees,' adding, 'This is the same situation for other financial holding companies.'