KakaoBank CEO Yun Ho-young, right, attends a virtual press conference, Tuesday. Courtesy of Kakao Bank
‘Profit model, growth vision of internet-only bank widely different from traditional lenders’
By Lee Kyung-min
KakaoBank CEO Yun Ho-young said Tuesday that the role and function of innovation-led, internet-only banks are fundamentally different from those of traditional commercial lenders, dismissing concerns over what critics consider a “highly overvalued” initial public offering (IPO) price ahead of the bank’s KOSPI listing scheduled for Aug. 6.
Critics say the banking affiliate of Kakao Corp. identified itself not in comparison with its local peers but with financial platform operators in advanced countries in assessing its corporate value, in an overreach to justify increasing the price-to-book ratio to up to 7.3, up significantly from 4.3 last year.
The ratio measures the market’s valuation of a company relative to its book value. The higher the figure, the more likely the shares are overvalued due in part to the greater growth potential attached by investors.
For context, the ratio remains far under 1 for Korean banks. The figure is 0.52 for KB Financial Group and 0.5 for Shinhan Financial Group.
But the internet-only bank used the ratio drawn from figures of between 4.6 and 8.8, as reported by four leading innovative platform businesses including U.S. mortgage lending platform Rocket Companies Inc., Brazilian digital payment service provider Pagseguro Digital Ltd, Swedish digital finance platform Nordnet AB and Russian bank TCS Group Holding.
“Our profit model and growth vision as a provider of cellphone-mediated online financial services are clearly different from other listed commercial lenders,” Yun said at a virtual press conference.
“We are bound by a Financial Services Commission mandate differently than other traditional banks, with the objective of our firm defined by contribution to financial innovation. We are responsible for a whole different sector of services that do not overlap with other lenders.”
The firm’s monthly active users exceeding 13.35 million as of June in his view is an indication of its explosive growth potential lifted further by plans of expansion into the global market, business-to-business sales and strengthening of the advertising market backed by massive traffic volume.
“About 6.2 million new accounts were opened within a year after we began providing services. This is 40 times the total number of online accounts opened by 16 banks combined in 2016. We will continue to offer more tailored services.”
The bank plans to expand its scope of business to include insurance and asset management, a strategy to be bolstered by closer cooperation with e-commerce and travel firms in introducing new products.
Loan programs will be made available by customer’s age group, credit status and business size. Also, its credit rating model will be strengthened to reflect analysis of payment information on mobile phones and sales data retained by small individual businesses, a task to be pursued with Kakao Pay, the payment service affiliate of Kakao Corp.
KakaoBank will issue 65.45 million shares through its IPO. The price per publicly offered share will range from 33,000 won ($28.60) to 39,000 won, with up to 2.52 trillion won to be drawn from investors.
The price will be set Thursday following two days of book building by institutional investors that will end Wednesday. Book building is how the security price is set for an IPO through generating and recording investor demand for shares.
The bank said its lending business reported an average 64 percent year-on-year growth over the past four years. Interest income and non-interest operating profit reported a solid 127 percent year-on-year average increase over the same period. Corporate profit is rising, driven by the firm posting a profit only a year and five months after launching in 2017.