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K-Bank, the country’s first Internet-only bank, is struggling to raise the capital it needs to expand as profits remain elusive amid increasing costs, sources directly involved with the issue said.
“K-Bank recently asked local private equity funds (PEFs) to participate in an additional rights offer because it wants to raise its capital to 500 billion won ($455 million) by the end of the year. However, investors have concerns about the bank’s future profitability given its weak growth in consumer loans and growing policy threats,” a local PEF source said.
“It’s highly unlikely the bank can achieve its goal. One reason is it has too many shareholders. This can create additional administrative costs, which I believe is not good for K-Bank as it has to address many challenges as quickly as possible,” said the source.
After a delay of one month, K-Bank’s shareholders approved in June a plan to raise 150 billion won via a rights offer. The bank was in discussions with new investors and PEFs to raise up to 300 billion won in an additional shares sale.
Korea Telecom (KT), the country’s dominant fixed-line operator, is the largest shareholder of K-Bank with 18.01 percent, followed by Woori Bank with 12.97 percent, NH Investment with 10.10 percent, Hanwha Life with 8.13 percent, GS Retail with 8 percent, KG Inicis with 6.57 percent, Danal with 6.57 percent and 13 others owning the rest, according to the bank.
New “digital banks” are widely expected to have an impact on its performance particularly by poaching customers and eroding margins across its retail segments.
Consumers and industry watchers see evidence of these trends and some say they are happening faster than expected. A key question is services differentiation that haven’t been extensively explored because Internet banks charge lending rates comparable to existing banks, which offer mobile banking services 24 hours a day.
“My question is how well K-Bank is positioned in terms of product differentiation. Differentiation will make its services much more attractive by contrasting its uniqueness with other competing services and products. K-Bank made an impressive start, however, it has to respond to lots of questions from shareholders and investors if it wants to attract more,” said another PEF source.
K-Bank reported an 83.8 billion won net loss last year, according to data from the Korea Federation of Banks. The bank, which began operating in April of last year, has extended about 1.95 trillion won in loans as of May this year. But it reported an 8.6 billion won loss by exempting customers from commission fees to win more users.
The PEF sources have asked the financial regulators to ease rules that bar non-financial companies from owning more than 10 percent of a bank.
“This regulation limits the growth of internet-only banks. If the rule is eased, then the bank’s largest shareholder KT has no legal issues in participating in a large-scale share sale,” said the second source, adding it will be tough for K-Bank to change the industry dynamics and resolve?the broader industry’s woes.
