Despite rising investor pressure to provide an exit ramp, there are a few reasons for K Bank to be cautious about listing this year. First, macroeconomic conditions are less than ideal, from inflation to persistently high interest rates, while the tech bubble may not have fully deflated. At the same time, geopolitical tensions show no sign of abating and mercurial North Korea is ratcheting up both its rhetoric and missile tests.
Meanwhile, K Bank’s business model, which has come to depend on cryptocurrency for growth, rests on a shaky foundation. While many fintechs that did not start out in crypto have diversified into the segment, K Bank’s reliance on it and the way in which the company works with the Korean crypto exchange Upbit are worthy of closer scrutiny.
To that end, Case in point: Korean media recently reported that about 70% of K Bank’s deposits are tied to cryptocurrency via Upbit. Since K Bank has about 15 trillion won (US$11.5 billion) in deposits, that means more than US$8 billion of the total is linked to crypto. We are not aware of any specific regulations in Korea that protect customer deposits in the event of certain crises, for instance, a run on Upbit, or a major hack. While Upbit has not suffered a serious security breach since 2019 when it lost about US$49 million, one wonders how long its luck can hold.
Given the risks posed by K Bank’s crypto dependency, lawmaker Kim Hee-gon said late last year that “at this point, it isn’t an exaggeration to say that K Bank has degenerated into Upbit’s private treasury,” according to local media. Lee Bok-hyeon, director of the Financial Supervisory Service (FSS), said that the FSS wants to understand the situation in more detail. He plans to report back the Financial Services Commission (FSC).
If regulators were to find serious problems with K Bank’s business model and order the digital lender to fix those problems in order to be greenlighted for an IPO, it is unclear how K Bank would respond. Such is its exposure to digital assets that any rejigging of that exposure to lower risk could take time.
Now here is the rub: Investors’ patience may be wearing thin. Keep in mind that K Bank had to abort IPO attempts in both 2022 and 2023. Is three times the charm?
Best that it is. According to Korean media, in 2021, the bank attracted 725 billion won from investors in a paid-in capital increase. The catch was that K Bank committed to pay back the investment fund through an IPO in the next five years. If K Bank does not fulfill its promise, investors, including private equity firm MBK Partners and global investment firm Bain Capital, can exercise their drag-along rights as granted by BC Card, the largest shareholder of the lender with a 69.54% stake.