Internet banks struggling to stay afloat

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 07:43

Economy

Internet banks struggling to stay afloat

Posted : 2019-04-03 14:54

Updated : 2019-04-03 18:24

K bank, Kakao Bank suffer net losses for 2 straight years

By Kim Bo-eun

When internet-only banks were launched two years ago, expectations were high over the impact they would have on the banking industry.

However, after two years, the two players K bank and Kakao Bank have failed to make a remarkable impact. They have failed to differentiate their services from major banks that have developed mobile banking applications.

Both internet banks posted deficits for two consecutive years.

K bank posted a net loss of 80 billion won in 2018, after making a net loss of 84 billion won a year earlier.

Kakao Bank's net loss came down to 20.95 billion won last year, after marking 104.49 billion won in 2017.

"It took internet banks in Japan five years to switch to a surplus. K bank is growing and figures are improving," a spokesperson of K bank said

The profitability of internet banks is limited because they currently operate with a limited amount of capital.

With a third internet bank set to launch, the existing two will face greater competition. A consortium led by Viva Republica and another by Kiwoon Securities have applied for licenses to operate internet banks.

Lee Byung-yoon, a senior research fellow at the Korea Institute of Finance, said "The banks have provided a stimulus to the market, but need to make further efforts to make a greater profit."

In order to enhance their performance, the internet banks need to increase their capital to do their lending business in a more aggressive manner, but hurdles lie ahead.

Last year, revisions were made to a law governing internet banks, enabling nonfinancial companies to own up to 34 percent of shares of internet banks. The law went into effect in January.

Because telecommunications firm KT runs K bank and Kakao runs Kakao Bank, the revisions paved the way for the companies to inject new capital into the banks as major shareholders.

In March, KT requested the Financial Services Commission (FSC) to review the company's eligibility to become a majority shareholder of K bank.

Kakao plans to make the same request, to become a leading shareholder of Kakao Bank.

However, it is uncertain what decision the FSC will hand down for the requests. This is because the companies are either being investigated by the Fair Trade Commission or have a record of having violated regulations.

In order to become major shareholders, they need to be clear of criminal penalties for violating regulations on finance, fair trade and taxation in the past five years, although financial authorities can decide to overlook a penalty if violations are deemed minor.

KT is currently being investigated by the FTC along with SK Telecom, LG Uplus and Sejong Telecom on suspicions of collusion in a circuit line business project.

In 2016, it was also fined 70 million won for violating fair trade regulations in making a bid for a project to develop a subway advertisement information technology system.

Meanwhile, Kakao M, which was merged with Kakao last year, got a 100 million won fine the same year for violating fair trade laws in fixing the prices of online music content.

Kakao founder and Chairman Kim Beom-su is currently on trial for violating the fair trade act, for omitting shareholding structure information of five subsidiaries.

bkim@koreatimes.co.kr