KakaoBank becomes South Korea’s largest retail lender as shares surge

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Shares in KakaoBank surged more than 60 per cent on their trading debut in Seoul, making the internet-only lender South Korea’s biggest retail bank by market capitalisation despite concerns over its high valuation.

The stock’s jump on Friday followed its Won2.6tn ($2.3bn) initial public offering and pumped up its market capitalisation to more than Won30tn. That is almost 50 per cent larger than more established financial businesses including KB Financial Group and Shinhan Financial Group.

KakaoBank’s IPO was South Korea’s biggest this year after video game maker Krafton. Tencent-backed Krafton, which produced the global hit PlayerUnknown’s Battlegrounds, is scheduled to debut in Seoul on Tuesday following its $3.8bn IPO.

Demand for KakaoBank’s shares from institutional investors outstripped demand more than 1,700 times, one of the highest rates in the country’s history.

But Kim In, an analyst at BNK Securities, warned the digital lender was overvalued, pointing out that KakaoBank’s assets were less than one-tenth of some of the country’s biggest retail banks.

“It needs to expand non-interest income through its platform business and sustain rapid growth of lending, and show its risk management capability through a proven credit rating system,” he said in a recent report. “But these projects are not easy to execute.”

KakaoBank’s affiliate Kakao Games raised Won384bn through an IPO in September and its stock price has since more than tripled. Kakao Pay, South Korea’s largest online payments service, had planned to go public on August 12 but its listing has been delayed after regulators asked it to revise its IPO prospectus amid growing concerns about high valuations.

The Kakao group is best-known for KakaoTalk, South Korea’s dominant messenger service, and is expanding into businesses including fintech, ride-hailing and entertainment. It has also set its sights on ventures abroad, offering its services in Japan.

The IPOs of Kakao’s various units have made founder Brian Kim the country’s richest man, with a fortune of about $13.5bn, according to Bloomberg data. That makes him richer than Samsung’s jailed leader Lee Jae-yong, whose net worth is $12.6bn.

Kakao’s units have performed well during the coronavirus pandemic, which has boosted demand for mobile platform services.

KakaoBank was set up in 2016 after winning an online banking licence from the Korean government. It quickly expanded its user base on the back of KakaoTalk, which is used by 46m of South Korea’s 52m people.

However, KakaoBank faces growing competition in the sector, with fintech Viva Republica set to enter the digital lending business in September. Rival K Bank has also increased its customer base via its cryptocurrency business after raising Won1.2tn in capital from shareholders including Bain Capital.