In the second quarter, the South Korean digibank’s net profit jumped 44% annually to 81.9 billion won (US$63.6 million), compared to 57 billion won (US$43.8 million) a year earlier. The net interest margin, a key barometer of profitability, stood at 2.26% in the second quarter, almost unchanged from 2.29% a year earlier.
Kakao Bank has benefited from a virtuous cycle. It has continuously added new accounts at a steady clip, and with its deposit base surging, it has been able to grow its lending business accordingly. Unlike some digital banks that have millions of accounts with low balances, Kakao had accumulated 300 trillion won (US$25.3 billion) in deposits by the end of 2022, after just over five years of operation, while it had 17 million monthly active customers as of the end of July – equivalent to about 1/3 of the entire South Korean population.
In the April to June period, Kakao’s loan books grew across its unsecured, housing rent and mortgage businesses. As of the end of June, its mortgage loans reached 5.5 trillion won (US$4.2 billion), up 3 trillion won (US$2.3 billion) from three months ago, as customers flocked to its low-rate products. The loan delinquency rate came to 0.52% in the second quarter, down from 0.58% in the January to March period. The company plans to expand its loan business in the second half of the year by refining its credit rating model and launching a loan comparison service.
Despite Kakao Bank’s consistently strong performance in Korea, it cannot be denied that it will eventually hit a ceiling in its home market. Its rivals K bank and Toss Bank are both increasingly competitive, while some incumbent lenders may eventually launch digital spin-offs of their own.
For that reason, we will be watching Kakao Bank’s forthcoming expansion to Thailand carefully. Kakao had the foresight not to indulge in hasty international expansion before it established itself as a profitable business, and even now, it is proceeding one new market at a time.
In mid-June, Thailand’s SCBX and Kakao Bank announced that they would apply for a virtual banking license in Thailand. Under their agreement, SCBX will hold a majority stake in the venture while Kakao will have at least a 20% share. Between the two of them, meeting capitalization requirements will be a breeze, while the majority Thai ownership should sit well with the Bank of Thailand (BoT). More partners may join the consortium in the future.
This will be a test of whether Kakao’s super app business model can work in a market where its messaging app Kakao Talk is not widely used. It may be that Kakao has to rely on SCBX’s understanding of the local market and focus more on designing competitive digital financial products than building a broader digital services ecosystem.