Kakao’s size restricts its stake in Internet bank

Kakao Corp.’s dream of expanding into finance with the nation’s first online bank faced a hurdle after the former IT start-up was branded a conglomerate by the Fair Trade Commission on Sunday.

The country’s dominant mobile messenger developer has a problem with that because non-financial conglomerates are barred from owning large stakes in banks under the nation’s banking law. A non-financial conglomerate can own up to 10 percent but it will have voting for only 4 percent. The law was introduced to prevent major conglomerates such as Samsung and Hyundai Motor from using affiliated banks as personal piggy banks.

Kakao was branded a conglomerate Sunday by the Fair Trade Commission because it has combined assets of more than 5 trillion won ($4.3 billion).

Kakao will now come under a number of regulations over its shareholding structure and financial transactions, according to the nation’s fair trade law. The regulations ban mutual investment between one subsidiary and another, new cross investment among more than three affiliates and restrict loan guarantees and inside business transactions. Major inter-subsidiary financial transactions and changes in the governance structure must be reported to authorities.

The Financial Services Commission wants to raise the limit to 50 percent to ease barriers for non-financial businesses to apply for establishing a web-based bank as part of efforts to boost the fintech industry. A bill has been proposed to apply the 50 percent rule to ICT companies that run portal, communication services, social network services including messengers and e-commerce businesses. It is still pending at the National Assembly.

The FSC is fairly sanguine about the Kakao situation considering the current shareholding structures of the two consortiums ? led by Kakao and KT ? that won preliminary approval from the authority in November to establish Internet banks.

The Kakao Bank consortium’s largest shareholder is Korea Investment Holdings with a 50 percent stake. Kakao owns 8 percent. It is planning to raise its stake to 10 percent, which is allowed under the current law if the stakeholder exercises no voting rights for 6 percent.

KT also holds an 8 percent stake in its consortium to launch K-Bank. Woori Bank and Hyundai Bank are holding 10 percent each.

“For now, there is no legal hurdle for either KT or Kakao in the process of launching their Internet banks,” said Rhee Yun-su, director for the banking sector at the FSC. “But after the launch, how many shares each stakeholder can own will be an issue.”

Kakao shrugged off the view that being a conglomerate will negatively affect its Internet bank business.

“Kakao has prepared for the opening in accordance with the law and regulations and the designation doesn’t really affect the business,” a spokesperson of Kakao said on Monday. “Even if the company goes on with a 10 percent stake in the consortium, there is no problem for Kakao in operating Kakao Bank.”

After receiving preliminary approval, the Kakao-led consortium awaits final permission. The two consortia have a goal of starting the banking services during the second half of this year.

The spokesperson acknowledged that the pending bills aimed at easing banking regulations would help.

SONG SU-HYUN,PARK EUN-JEE [song.suhyun@joongang.co.kr]