April 26, 2024

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[THE INVESTOR] Kakao Bank, Korea’s second internet-only bank that’s stirring up the country’s banking industry drew 1 million new accounts just in 102 hours since it began operation on July 27. 

A of 1 pm on July 31, the bank also attracted 344 billion won ($307 million) worth of deposits, while extending 323 billion won in loans.

Run by Korea’s leading messaging app KakaoTalk operator Kakao Corp., it has outpaced its rival K bank which was launched on April 3. 

Related:
Kakao Bank bags over 300,000 accounts on 1st day


K bank had lured 240,000 new accounts in 24 days. In contrast, local commercial banks opened only 155,000 online-only accounts in 2016.

The popularity of Kakao Bank is expected to speed up digitalization at the commercial banks.

“People will become more accustomed to the idea of online-only banking and this will lead to changes and challenges at a faster pace,” an employee at a commercial bank told The Investor on the condition of anonymity.

During the past five years, the number of bank branches and employees in Korea have been declining. As of end-2012, there were 5,768 branches and 102,496 employees, but by end2-16 the numbers declines to 5,222 branches and 93,430 employees, according to data provided by the Bank of Korea.

During the first quarter this year, 81 branches were shut down, with 334 more banks are expected to close by the year-end.

Citibank and KEB Hana Bank are leading the trend, with the former expected to shut down 90 of its 133 branches this year, while KEB Hana Bank will close 70 branches.

However, critics warn that Kakao Bank will soon face challenges as K bank did.

In end-June, K bank temporarily suspended sales of its credit-based consumer loans after it reached its yearly deposit-loan target of 900 billion, a move that could undermine the bank’s capital adequacy ratio.

The bank is likely to continue suspending loans until its raises more capital. But the country’s strict Banking Act makes it difficult for K bank, whose largest shareholder is telecommunication giant KT Corp. with an 8 percent stake, to do as such.

According to regulations, non-financial institutions are only permitted to hold 10 percent ownership of banks, while only being allowed to exercise up to 4 percent of their voting rights.

But Kakao Bank said it will shore up its capital next year if necessary, and claims it won’t be difficult as its largest shareholder is a financial company.

Kakao Bank has a paid-in capitalization of 300 billion won. Korea Investment Holdings and Kakao hold a 58 percent and 10 percent stake, respectively. Others stakeholders of Kakao Bank include Kookmin Bank, eBay and China’s Tencent Holdings.

By Park Ga-young (gypark@heraldcorp.com)