Kakao Bank to widen mid-interest loans ahead of IPO

Kakao Bank CEO Yoon Ho-young speaks during an online press conference at its headquarters in Seongnam, Gyeonggi Province, Tuesday. Courtesy of Kakao Bank

By Lee Min-hyung

Kakao Bank, the nation's leading internet-only lender, will widen its loan business portfolio focusing on mid-interest-rate products for those with medium- to low-credit scores, the bank said Tuesday.

This is a strategic move to expand the lender's business areas and improve profitability ahead of an initial public offering (IPO) slated for the latter half of 2021.

“We are going to drastically increase the supply of mid-interest-rate loan products this year, even if their specific volume is still not confirmed, due to lingering uncertainties in the local financial market,” Kakao Bank CEO Yoon Ho-young told reporters during an online press conference.

The lender supplied 1.4 trillion won worth of mid-interest-rate-loan products in 2020. Mid-range interest loans generally carry interest rates of around 6 percent to 10 percent, which is higher than typical non-collateralized (credit) loan products offered by first-tier lenders here.

But Yoon said the decision was made not simply to raise its profitability.

“Seeking profits is not necessarily the key reason behind our existence,” Yoon said. “We have a sense of responsibility that Kakao Bank should bring a new paradigm shift in the digital banking industry.”

The lender will not be in a rush to launch the new lending products, but instead release them in the latter half of this year amid financial volatility worsened by the coronavirus pandemic, surging household debt and toughened loan regulations imposed by authorities, according to Yoon.

Kakao Bank is widely expected to make a strong IPO debut this year, with its post-IPO valuation estimated to top 30 trillion won. The online bank is being traded at around 68,500 won per share in the over-the-counter market as of Tuesday.

Yoon declined to confirm detailed plans for before or after the IPO.

“We cannot comment on any outlook over our planned IPO,” he said. “We can only say that we will place a priority on increasing our traffic and transaction volumes from customers this year. After holding a shareholders' meeting in March, Kakao Bank will discuss details with market experts over the listing plan. It will be tough for us to go public in the first half of this year.”

Rivalry against K bank, Toss

For the past three years since its establishment in 2017, Kakao Bank has enjoyed a leading status in the local internet-only bank market after rival K bank fell into a state of capital impairment.

But with K bank resuming operations last year, competition between the two lenders is expected to heat up in 2021. Toss Bank is also scheduled to start services as early as July, and launch mid-range interest loan products.

K bank is also set to focus on diversifying its loan product portfolios following a planned capital increase of 400 billion won, which will take place no later than the first half of 2021.

Mid-interest-rate loans are seen as a niche market for internet-only lenders at a time when financial authorities are calling on commercial banks to scale down their low-interest credit loans to households.

As regulators reaffirm their strong willingness to tighten restrictions, demand for mid-interest-rate loans is expected to be on the rise throughout 2021 unless the coronavirus ends soon.

Yoon said Kakao Bank does not consider the rivals as “competitors,” as they will help increase the overall market size in the digital banking industry.

“We have never thought of them as our rivals ever since our establishment in 2017,” he said. “Their existence is good for the overall growth of the market. My view is that all the players should focus more on developing better digital content and innovating the local financial market.”