K bank urged to diversify business model for sustainable growth

The headquarters of K bank located in central Seoul / Courtesy of K bank

By Anna J. Park

K bank, which marks its fifth anniversary this month, has achieved steady growth, garnering over 7.5 million customers as of the end of March. The internet-only bank's solid growth rate is impressive, particularly during the past two years, which contrasts with the tough time it had during the first few years when it was first established in April of 2017.

Since the bank resumed providing loan products in July 2020, its customers and the size of its capital have increased exponentially. In 2021 alone, the bank drew nearly five million new customers. That means the bank added one new customer every six seconds. The partnership with UpBit, the country's largest cryptocurrency exchange, is seen as playing a significant role in the bank's growth during the past couple of years.

With the increase in both the number of users and the bank's capital, K bank recorded its first annual net profit last year, succeeding in achieving a turnaround just four years after launching operations. Specifically, interest income grew around 15 times from 13.4 billion won ($10.9 million) in 2017 to 198 billion won in 2021.

The bank has also pioneered the internet-only banking industry. The bank not only started operations as the country's first internet-only bank in April 2017 ― three months before its main competitor KakaoBank ― it was also the first bank in the country that introduced online-only mortgage loans for apartments in August 2020. With the bank's innovatively streamlined mortgage process, processed exclusively online, the mortgage loan program lent more than one trillion won to customers in just a year.

“Following the bank's past track record of achieving financial innovations in the exclusively online setting, K bank will continue to provide a variety of savings and loan products for the benefit of customers. The bank will also strengthen its partnerships with leading firms in each sector, while expanding scopes of investments in various assets, to become a representative financial platform,” the bank's CEO Seo Ho-sung said.

Based on the growth, the bank's corporate value is estimated to be around seven to eight trillion won.

“When applying KakaoBank's projected price book-value ratio (PBR) for 2022, K bank's valuation is estimated at around 7.3 trillion won,” Kim Su-hyun, an analyst at Shinhan Financial Investment, said, adding that the valuation could rise to as high as 10.3 trillion won when compared to its global peers.

As for the bank's future growth strategies, market experts point out that K bank is required to diversify its business model as well as extend the scope of its customers if it wishes to continue its high growth rate.

“It is an absolute must that internet-only banks should diversity their business portfolios on a mid-and long term basis, in order to guarantee their rapid growth rate,” Kim Do-ha, an analyst at Hanwha Investment & Securities, said.

Another important task that the internet-only bank has to focus on is maintaining its profitability when the bank aims to increase loans to mid-and low-credit customers.

“In both cases of KakaoBank and K bank, their operating profit margins tend to decrease when they intend to increase loans to mid-and low-credit customers, due to the increased proportion of bad debts,” Jeong Tae-joon, an analyst at Yuanta Securities Korea, said.

With the financial authorities' request to increase the ratio of loans to mid-and low-credit customers, the bank is facing the need to further increase loans to those customers. The bank has so far extended over 2.5 trillion won worth of loans to that customer group during the past five years.