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Future banking

KakaoBank’s skyrocketing valuation fuels debate on financial reform

Now, the country's four major banks are also asking for the license to open up their own internet-only banks

By May 25, 2021 (Gmt+09:00)

KakaoBank headquarters in Pangyo, South Korea.
KakaoBank headquarters in Pangyo, South Korea.

There have been near-endless debates regarding the “proper valuation” of KakaoBank, South Korea’s largest internet-only bank that has kicked off its IPO process last month for listing within the second half of 2021.   

Regarded as the game-changer of the banking industry, the Kakao Corp. affiliate is valued at more than 35 trillion won ($31.2 billion) in the over-the-counter (OTC) stock markets, according to the OTC trading app Stock Plus. On May 24, its stock was traded at 97,000 won per share with 365 million shares outstanding.

KakaoBank’s valuation far exceeds those of the country’s four largest banking groups, namely KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group. KB, the largest among the four traditional banking giants, is valued at 24 trillion ($21.4 billion).

As the stocks traded in the OTC markets are often considered to be overvalued, financial analysts point out that KakaoBank’s valuation needs a closer examination.


The analysts say that KakaoBank could expand quickly due to the competitiveness of is parent company Kakao as a leading platform business operator in the country. Kakao is currently the seventh-largest among the Kospi-listed companies in terms of market capitalization.

KakaoBank’s business model and services have also been innovative and disruptive. Positioning itself as a contactless bank, it launched the country’s first non-face-to-face housing loans on the “jeonse” system, a popular rent system in Korea where tenants pay a large amount of lump-sum deposit to lease the house. 

The internet bank further offered convenient, expedited credit loans, which became popular to a degree where many employees from the competitor banks were reported to have borrowed money using the service. 

Despite the innovation and disruption created by the bank, some analysts have started questioning its current valuation.

Analyst Jeon Bae-seung of eBEST Investment & Securities Co. estimated the bank’s valuation to be around 15 trillion won ($13.4 billion) in his recent report.

“My number is based on the assumption that KakaoBank raises an additional capital of 2 trillion won ($1.8 billion) during its IPO process to secure an aggregate capital of 5 trillion won ($4.5 billion). I also looked at some overseas cases on internet banks,” said Jeon.

He added that even if he adds some premium to KakaoBank as a platform business, he sees its valuation to stay around 20 trillion won ($17.8 billion) to 27 trillion won ($24.1 billion) only.

The securities industry’s consensus estimate on KakaoBank valuation is around 10 trillion won ($8.9 billion) plus some premium depending on the level of optimism that the analyst has on the future of mobile-oriented banking.

Many in the industry highlight that the country’s largest banking group KB, with a market capitalization of 24 trillion won ($21.4 billion), had a total asset of 59.6 trillion won ($53.1 billion) and generated a net profit of 3.5 trillion won ($3.1 billion) last year.

On the other hand, KakaoBank only had a total asset of 2.65 trillion won ($2.4 billion) and generated a net profit of 110 billion won ($98 million) last year. Plus, KakaoBank only operates retail banking services for individuals, unlike the traditional banks that have a strong presence in corporate financing.


The securities analysts are also saying that the stocks of South Korea’s four major banking groups are undervalued.

While the banking groups -- KB, Shinhan, Hana and Woori – have all enjoyed big rebounds in their stock prices recently, the analysts are saying that they have more room to grow, just like the major bank stocks in the US.   

KB Financial Group is the country's largest banking group
KB Financial Group is the country's largest banking group

Industry insiders say that the high degree of regulation by South Korea’s financial regulators is causing the undervaluation. They stress that the government not only intervenes in the dividend payout policies of these four banks but has also put pressure on them to contribute to creating a number of funds to help tackle the COVID-19 crisis.

The major banking groups are reported to have requested the financial regulators to also grant them licenses to open up internet-only banks. While the consensus is that these traditional banks should at least be given the licenses to set up their own affiliates to compete against KakaoBank, K Bank and Toss Bank that seek to launch in the second half of 2021, there are mixed views on whether these units will be competitive in the market.  

Fintech platform Toss is also seeking to launch its banking service in the second half of 2021.
Fintech platform Toss is also seeking to launch its banking service in the second half of 2021.

Those who are doubtful say that the internet-only banks opened by the traditional banks are unlikely to succeed.  

“Granting that the new internet-bank unit is likely operated by the same traditional organization and its employees, it is doubtful whether it will ever succeed,” said a high-level official in the financial industry.

Others who are optimistic say that the banking sector will become “more experimental.” Some examples of potential experiments include internet-only banks that specialize in asset management or mid-range interest rate loans.

“We may also expect some regional banks to expand their business scope to the national level,” said an industry official.

The traditional banks are emphasizing fairness in asking for the license to open up internet-only banks. According to an official at a major bank, the government has been disproportionately focusing on growing fintech startups, which in reality is giving more power to the platform giants like Naver and Kakao.

K Bank is another internet-only bank operated by a company outside the traditional banking sector.
K Bank is another internet-only bank operated by a company outside the traditional banking sector.

At the same time, these large banking groups are also making changes on their own to compete with the country’s leading platform operators. Shinhan Financial Group has recently announced its plan to invest 14 billion won ($12.5 million) to make a delivery app, while Hana Financial Group will set up a live e-commerce platform.

Write to Dae-hun Kim at

Daniel Cho edited this article.

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