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Kakao may increase stake at bank

It could become largest shareholder, but things don’t look good for KT

June 27,2019
Korea’s two internet banks face contrasting fates.

Kakao Bank, the largest internet-only bank backed by internet giant Kakao, has had a major obstacle cleared as the Ministry of Government Legislation offered a favorable legal interpretation that could help Kakao become the largest shareholder of the bank.

Kakao was barred from increasing funding of the bank because of a legal restriction that limited its stake to 10 percent of the internet bank’s capital. With the revision of the regulation, the limit will be raised to 34 percent to allow for the top stakeholder status.

But another barrier remained since the financial authorities also impose a set of criteria on the top shareholder of banks.

The legislation stipulating that a company with a record of violating the Fair Trade Act will not be eligible to become the largest shareholder of an internet-only bank stood in the way as Kakao Chairman Kim Beom-su has been indicted for breaching fair trade law.

To clarify, the Financial Services Commission asked for a legal interpretation from the Ministry of Government Legislation back in April. The institution said on Wednesday that the chairman’s record is irrelevant to the laws concerning the top shareholder’s criteria.

“Those who don’t hold the shares of an internet-only bank will not be subject to screening,” the Ministry said, which means Chairman Kim, who doesn’t directly own a single share of Kakao Bank, is excluded from the process.

The regulatory green light came after Kakao Bank became profitable in the first quarter, just 18 months after it started operations.

Kakao Bank recorded 6.6 billion won ($5.54 million) in net profit in the first quarter compared to a 5.5 billion won loss a year earlier, although industry observers projected that turning a profit could take several years.

While Kakao Bank enjoys positive results, its peer K bank is stuck in its own regulatory knot.

K bank, backed by telecom giants KT and Woori Bank, was on track to make KT the top shareholder with the change to the law.

KT, however, was fined 70 million won for price-fixing in 2016 and a court ruling is still underway.

Unlike Kakao Bank, the case involves KT as the main defendant, not a chairman. K bank is on the lookout for new investors as it is now in need of additional capital to run the business.

The most likely scenario is that Woori Bank, the current top shareholder, will take a larger role.

Woori Bank holds a 14 percent stake in the online bank and NH Investment & Securities and KT own 10 percent each.

“It is true that Woori Bank’s engagement is highly likely among many other scenarios,” said a source at K bank who spoke on the condition of anonymity.

“But even if things go that way, there should be a condition that KT will buy back Woori Bank’s shares when it becomes the top shareholder later on.”

Woori Bank struck a cautious tone.

“We are discussing the issue with other shareholders,” Sohn Tae-seung, chairman of Woori Financial Group and CEO of Woori Bank, told reporters on Monday.

The financial authorities apparently welcome the possible scenario.

“The financial authorities will actively support Woori Bank investing in K bank in a way that helps bolster the financial status of the bank,” said Choi Jong-ku, chairman of the Financial Services Commission.

BY HAN AE-RAN, PARK EUN-JEE [park.eunjee@joongang.co.kr]


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