Kakao Bank targets loan market for low-credit borrowers

Kakao Bank, South Korea’s second-largest internet-only lender, will expand lending to people with low to moderate credit scores and make a foray into the business lending arena during the year, the CEO of Kakao said on Tuesday. the society.

Yoon Ho-young, CEO of the lender, told reporters that loans for low- and medium-credit borrowers will be “significantly” increased from last year’s 1.38 trillion won (US $ 1.24 billion). ). The size and interest rates of these loans will depend on market conditions, risk management and financial strength, he said.

The move is seen as a response to criticism that, contrary to the original goal of helping financial minorities, the bank has focused on high-credit borrowers.

“Over the past year, we have increasingly focused on high-credit borrowers and have fallen short of lending expectations for mid-rate customers. This year, we will be expanding our lending customer base, ”said Yoon.

As part of efforts to increase lending for low and medium credit score holders, Kakao Bank lowered credit limits for high credit users from 150 million won to 100 million won in January while increasing interest rates for them by 0.34 percentage points from February.

It is also developing a unique credit scoring system for those with weak and moderate credit scores as well as those who lack credit information, Yoon noted.

CSS developed by the banking arm of mobile phone giant Kakao could pose a threat to typical credit scoring methods used by traditional banks, if the bank can create a revolutionary system that could improve profitability and lower rates. default on low and medium credit loans.

“We are developing and improving our CSS based on the financial and non-financial database owned by the Kakao family,” Yoon added.

At an online press conference on Tuesday, Kakao Bank CEO Yoon Ho-young presents the company’s strategy for 2021. (Kakao Bank)

The lender, which is prohibited from lending to large companies, will roll out its first loans to small businesses, initially targeting the self-employed.

In addition to expanding its lending customer base, it also plans to strengthen its platform business segments utilizing the high number of users by adding sales channels for funds, bancassurance and credit card products. credit.

In 2020, Kakao Bank added 3 million new users to reach the current number of 15.4 million users, nearly 30% of the country’s population. The average number of monthly unique visitors was 12.5 million last year, the company said. The number of transactions reached 640 million and the transaction amount climbed 80% to reach 234 trillion won in 2020.

It appears that the internet-only bank has so far been successful in turning its strong user base into profit.

Kakao Bank reported net profit of 113.7 billion won last year, up 729% from 13.7 billion won in 2019, the first year it recorded a profit.

Growth in net income was driven by an increase in credit lending which contributed to a better net interest margin. The NIM stood at 408 billion won last year.

The bank’s total assets stood at 26.65 trillion won at the end of 2020, to which is added 3.92 trillion won a year earlier.

The triple-digit growth in bottom line combined with the strategic moves announced on Tuesday, if successful, will pave the way for a much-anticipated IPO for the company this year.

The company’s IPO is one of the most anticipated this year, along with other publicly traded companies such as Kakao Pay, Krafton games studio and SK Bioscience.

OTC shares of Kakao Bank are trading at 72,000 won per share on Tuesday at 2:30 p.m. That puts Kakao Bank’s valuation at 29.3 trillion won, well above the valuation of major commercial banks such as than KB Bank’s 17 trillion won and Shinhan Bank’s 16 trillion won.

However, the company’s IPO will not take place in the first half of the year, according to Yoon, as the company plans to seriously prepare for a listing after its financial results for 2020 are approved at a shareholders’ meeting. in March.

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Priscilla C. Carnegie