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.

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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