K Bank valued at $6.9 billion, needs to expand loans: Morgan Stanley

K Bank, the digital banking unit of South Korea’s telecom giant KT Corp., is valued at 8 trillion won ($6.9 billion) and could further raise its valuation if it can grow its lending business, Morgan Stanley said.

In its recent research report, the US investment bank said the internet-only bank has come into the limelight following the successful listing of KakaoBank Corp. earlier this month.

“After a sluggish start, K Bank has been able to visibly narrow the gap with Kakao, surpassing 11 trillion won in deposits this quarter,” Morgan Stanley said in the report.

“Its loan balance at 5 trillion won does need to balance out the fast-growing deposits, but the digital bank has been making good progress with unsecured credit and jeonse loans.”

Jeonse refers to a popular rent system in Korea where tenants pay a large amount of lump-sum deposits, instead of paying monthly rent, to lease a house.

INNOVATIVE & DISRUPTIVE

As contactless banks, Korea’s digital lenders have grown rapidly by offering innovative and disruptive business models and services, including Korea’s first non-face-to-face housing loans on the jeonse system.

“To be conservative, we value K Bank at 8 trillion won (implying 2.7 trillion won value for the largest shareholder BC Card’s 34% stake), at 25% of KakaoBank’s latest market cap,” said Morgan Stanley.

KakaoBank, majority-owned by Korea’s top messaging app operator Kakao Corp., became the country’s first listed digital bank and the most valuable lender upon its trading debut on Aug. 6 with its market capitalization of 33 trillion won.

Founded in 2017, KakaoBank is Korea’s largest internet-only bank with over 13.6 million subscribers as of the end of 2020.

2023 IPO TO BOOST VALUE

K Bank, which began operations in 2017, aims to list its shares on the Korea Exchange in 2023.

Morgan Stanley said K Bank’s initial public offering is a “component which has yet to be properly reflected in KT’s current share price.”

Reflecting its sold first-half results, Morgan Stanley raised KT’s price target to 43,000 won with an Overweight rating. In early Tuesday trade in Seoul, KT’s shares were up 0.8% at 32,700 won.

Other major shareholders of K Bank include Woori Bank (12.68%), Bain Capital and MBK Partners, which own more than 5% of the digital bank, respectively.

The number of K Bank’s subscribers rose to 6.28 million at the end of July from 2.19 million at the end of 2020, helped by its partnership with Korea’s top cryptocurrency exchange UPbit last year.

K Bank’s deposits increased to 10.62 trillion won at end-July from 3.75 trillion won at end-2020, while its loans grew to 5.51 trillion won from 3 trillion won in the same period.

Last month, the internet bank raised 1.25 trillion won through a rights offering for business expansion and diversification as it strives to overtake rivals such as KakaoBank and Toss Bank, owned by Viva Republica Inc.

Write to Hyun-Woo Lim at tardis@hankyung.com
In-Soo Nam edited this article.