New rule to alter internet bank ownership

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New rule to alter internet bank ownership


Major investors in the country’s two internet-only banks are gearing up for a big shift in their stakeholder structure. A law aimed at allowing non-financial companies to become the top shareholder in online banks was approved by the National Assembly last month.

The lead investors of K bank and Kakao Bank - KT and Kakao - plan to increase their stakes in the banks once the law takes effect in January.

Both have been barred from increasing their funding of the banks because of a legal restriction on their stakes at 10 percent of an internet bank’s capital. The limit will be raised to 34 percent.

Multiple media outlets reported that the two stakeholders, anticipating a relaxation of the law, signed share purchase agreements last year with other shareholders in order to expand the portion of their shares through call options.

A call option is a right given to a stakeholder to buy an agreed quantity of stocks or assets before a particular date.

In the case of Kakao, the contracts allow it to exercise a call option on Korea Investment Holdings, currently the top shareholder of Kakao Bank with a 58 percent stake.

KT will be allowed to increase its stake in K bank by purchasing additional shares from Woori Bank and NH Investment & Securities. Woori Bank holds a 14 percent stake in the online bank and NH 10 percent.

Kakao and KT declined to comment on the details of the sales contract, but acknowledged their strategy to raise their investments to become the largest shareholder.

“When K bank was first founded, there was a consensus that KT would take the lead in operating the bank to integrate innovative technologies into financial services,” said a source at KT who spoke on the condition of anonymity.

“Now, a primary barrier that got in the way of that direction has been removed finally, and we will seek ways to increase our shares in the following rounds of capital increases,” the source said, without specifying how much of the bank it is targeting.

But the source struck a cautious tone because the proceedings to implement the new rule are still under way.

“I’m afraid to mention a specific time frame for the plan because we still need to see what the rules say before we will be able to gain more shares,” the source said.

He referred to a follow-up screening that will accompany the eased regulations to verify whether an entity is qualified to become the top shareholder of an internet-only bank.

The new legislation stipulates 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 for five years after the most recent violation.

Conglomerates whose total assets exceed 10 trillion won ($8.9 billion) are also barred from a higher stake in an internet bank, with the exception of conglomerates whose ICT assets are 50 percent or more of total assets.

KT was fined 70 million won for price-fixing in 2016, and Kakao’s affiliate also paid 100 million won in fines for violating the Fair Trade Act the same year.

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