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KakaoBank’s plan to widen loans for bad-credit customers hits snag

KakaoBank CEO Yoon Ho-young speaks during a press conference in Seoul, July 20. Yonhap
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KakaoBank’s plan to expand loans to customers with bad credit faces an obstacle

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


Written by Lee Min Hyung

KakaoBank’s plan to expand its loan portfolio targeting customers with medium and poor credit scores has run into a snag amid intense market competition and regulatory pressure.

According to data from the Korea Federation of Banks, the proportion of lender loans to those with credit scores below 820 points accounted for 13.4 percent of the total unsecured loan offers as of the end of September this year.

This is well below its previous target of 20.8 percent that the bank expected to achieve by the end of this year. The figure increased by 1.2 percentage points to 14.6 percent by the end of October, but the chances are slim that the company will be able to meet its previous target within this year.

This is mainly due to the escalating competition from the existing banks, most of which are seeking to maximize their profits from loan to deposit margin by launching more loan products with medium term interest rates from 6 per cent to 10 per cent.

The unprecedentedly strict regulations imposed by the financial authorities to curb the growing household debt are also adding pressure on KakaoBank. With the Financial Services Commission capping annual loan offerings by major banks here, the regulatory hurdle is expected to block KakaoBank’s crackdown.

KakaoBank’s earnings structure also relies heavily on the deposit-to-loan margin of its home loans due to its focus on the business-to-consumer segment.

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

The number of KB Kookmin Bank, the largest bank in the country, also reached 91 percent during the third quarter.

Four major banking groups are on track to reduce their reliance on traditional profit margins and seek to increase profitability in the non-banking sectors. But that’s not the case for Kakao subsidiary right now, as it’s only been five years since the company debuted in 2017.

But with financial regulators recently deciding to exclude loans to medium and poor credit scorers next year when regulating the cap on family loan offerings, KakaoBank will face no penalties in expanding its business even if it fails to meet its target target.

However, investors still identify the ongoing uncertainty surrounding the lender’s loan business expansion as a major risk factor hampering its stock growth.

KakaoBank debuted on KOSPI in August and its share price soared to over 90,000 won per share just days after it was listed on the major exchange. But the stock has since lost its luster, failing to recover to its previous highs. KakaoBank closed at 63,000 won per share on Tuesday, down 400 won, or 0.63 percent, from the previous day.

“KakaoBank’s narrow trading portfolio mostly targeting individual clients is one of the main reasons behind the slowdown in stock growth,” said a financial industry official.

















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