Bad credit

KakaoBank’s plan to expand lending for credit customers is a problem

Korea's time


KakaoBank’s plan to expand lending for credit customers is a problem

KakaoBank CEO Yoon Ho-young speaks at a press conference in Seoul on July 20.  Yonhap
KakaoBank CEO Yoon Ho-young speaks at a press conference in Seoul on July 20. Yonhap

By Lee Min-hyung

KakaoBank’s plan to expand its loan portfolio targeting clients with average and poor credit ratings has encountered a problem amid heightened market competition and regulatory pressure.

According to data from the Korean Federation of Banks, the lender’s share of loans to those with a credit rating of less than 820 points reached 13.4% of its unsecured loan offerings at the end of September this year.

That figure is well below its initial target of 20.8% that the bank expected to reach by the end of this year. The figure rose 1.2 percentage points to 14.6% at the end of October, but the chances seem slim that the company will be able to meet its initial target during this year.

This was mainly due to increased competition from existing banks, most of which are looking to maximize their income on the loan-to-deposit margin by launching more loan products with average interest rates of 6-10%.

Unprecedented regulations imposed by financial authorities to curb growing household debt are also adding pressure on KakaoBank. With the Financial Services Commission setting an upper limit here on annual loan offers from big banks, the regulatory hurdle is expected to dampen KakaoBank’s momentum.

KakaoBank’s profit structure is also heavily dependent on the deposit-loan margin of its household loans due to its focus on the business-to-consumer sector.

KakaoBank reported third quarter operating profit of 71.2 billion won ($ 60.23 million). But more than 90 percent of its annual income was generated from the deposit-loan margin of its household lending business, according to DB Financial Investment.

The turnover of KB Kookmin Bank, the country’s largest bank, also reached 91% in the third quarter.

Four large banking groups are in the process of reducing their dependence on conventional margins and seeking to increase their profitability in non-banking sectors. But that’s not the case for the Kakao branch at the moment, as it’s only been about five years since the company debuted in 2017.

But with the financial authorities recently deciding to exclude loans for people with average and bad credit scores next year when regulating the upper limit of household loan offers, KakaoBank will not face any penalties in its commercial expansion even if it does not reach its target objective.

Investors, however, still identify the lingering uncertainty surrounding the lender’s expansion of lending business as a major risk factor blocking the growth of its stocks.

KakaoBank debuted at KOSPI in August, and its share price soared to over 90,000 won per share within days of its IPO. But the title has since lost its luster, failing to regain its previous peak. KakaoBank closed at 63,000 won per share on Tuesday, down 400 won or 0.63% from the previous day.

“KakaoBank’s narrow business portfolio primarily targeting individual clients is one of the main reasons for the weak growth in stocks,” said a financial sector official.