KakaoBank's Poor 4Q Performance: Debt Restructuring and Financial Innovation Cannot Be Pursued Simultaneously

Earnings Expected to Fall Short... Net Profit 54.3 Billion KRW, 16% Below Consensus
Government Regulation Strengthening Also a Negative Factor... Attention Needed on Duration

[Asia Economy Reporter Minwoo Lee] KakaoBank is expected to post somewhat disappointing results for the fourth quarter of last year. This is because interest income has decreased due to government loan regulations, and platform revenue is also expected to fall short of expectations.

On the 22nd, Kiwoom Securities forecast that KakaoBank would record a net profit of 54.3 billion KRW in the fourth quarter of last year. Although this represents a 4.4% increase compared to the previous quarter, it is expected to fall short of the market expectation of 64.7 billion KRW by about 16%.

First, it is estimated that interest income decreased more than initially expected due to the impact of government loan regulations. In the fourth quarter, high-credit borrower personal loans were suspended, followed by a temporary suspension of jeonse and monthly rent loans. However, the trend of rising net interest margin is expected to accelerate due to an increase in mid-interest rate loans.

Platform revenue is also in a situation where it is difficult to increase significantly compared to the previous quarter as expected. This is because KakaoBank must meet its own mid-interest loan targets, and restrictions on linked loans have increased due to the Debt Service Ratio (DSR) regulation and strengthened Financial Consumer Protection Act. Additionally, revenue growth from securities-linked accounts appears to have slowed somewhat due to stock market adjustments. On the other hand, as stock prices rise, the exercise of stock options increases, and additional advertising expenses are incurred, an increase in selling and administrative expenses seems inevitable.

Considering the slowdown in profit growth due to strengthened government regulations, Kiwoom Securities lowered KakaoBank's net profit forecasts for this year and next year by 27.8% and 23.6%, respectively. This was done despite the recent significant decline in stock prices.

The key variable that could affect the stock price going forward is whether the government’s ongoing bank-led debt restructuring policy will continue. Youngsoo Seo, a researcher at Kiwoom Securities, explained, "Internet-only banks have a superior competitive advantage compared to existing large banks, but if total loan volume regulations are maintained, opportunities to increase profits by leveraging their unique competitiveness will decrease," adding, "If financial instability expands, regulations on internet-only banks and fintech (financial technology) companies are likely to be further strengthened."

However, if the policy direction shifts toward financial innovation after the presidential election, it could act as a positive factor. Researcher Seo predicted, "In this case, KakaoBank’s competitiveness could be re-emphasized," and added, "We should also consider the possibility of abandoning restructuring and changing the policy direction to economic stimulus and financial innovation, as was the case in the second half of 2019."

This content was produced with the assistance of AI translation services.