, Korea

South Korea's web-only banks lose steam as they book massive half-year losses

Kakao Bank and K Bank booked net loss of $10.67m and $35.14m respectively.

South Korea purely internet banks, Kakao Bank and K Bank, bled in the first six months of 2018 after booking massive losses that hampered their early-stage expansion.

Also read: South Korea to allow payment via QR code in 2019

Having both launched in 2017, the two tech players appear to be having trouble growing their customer base despite having enjoyed a strong patronage in the early month of their debut with Kakao Bank accumulating around 2 million accounts and K-Bank gaining around 500,000 mere months after their official launch.

Despite generating a steady stream of income from interest payments and fee income, Kakao Bank booked a $10.67m (KRW12b) loss in H1 2018 whilst its net interest margin, a key measure of profitability, fell from 2.12% in March to 2.03% in June.

The bank also spent $61.38m (KRW69b) to cover exemptions for ATM fees and other service fees in an effort to attract more customers.

On the other hand, K Bank posted a net loss of $35.14m (KRW39.5b) over the same period as it stepped up spending including an IT system installation and upgrade worth $80.06m (KRW90b).

To boost the online banking industry, a legislator has submitted a bill to the National Assembly to allow technology firms to become the top shareholder in an Internet-only bank.

Existing rules prescribe impose strict restrictions on the amount of shares non-financial firms can hold in commercial banks as such entities must first secure the clearance of the Korean Financial Services Commission if it wishes to hold more than 4% of voting stock in an Internet-only bank.

If passed, the legislation would pave the way for broadband internet operator KT Corp., which operates K-Bank, to increase its stake in the lender and raise more capital.

Photo from ByoungHyun Chun - Own work, CC BY-SA 4.0

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