Internet-only K bank on brink of financial troubles

K bank, one of South Korea’s two internet-only banks, is on the brink of financial troubles as plans for new capital injection by its operator KT have been halted by a regulatory delay.

Though K bank’s shareholders have begun drawing up a new action plan for capital procurement, it is uncertain whether it can be executed to success.

The Financial Services Commission decided last week to indefinitely suspend its review of KT’s application to increase its stake in K bank due to an ongoing investigation concerning KT’s alleged antitrust violations.

Local telecommunications firm KT had recently sought approval by the FSC to increase its stake in K bank. It had planned to raise 592 billion won ($522 million) via a rights offering this week.

The move came after a change in local banking regulations came into effect in January, allowing information and communication technology firms to own up to 34 percent of an internet-only bank. The previous threshold was 4 percent (or 10 percent without voting rights).

But the special law on internet-only banks stipulates that a firm seeking to possess more than a 10 percent stake in an internet-only bank must not have violated laws related to fair trade or taxes in the past five years.

Thus the FSC decided it would halt its review until the fair trade investigation reaches a conclusion, dealing a blow to KT’s investment plans for K bank.

In lieu of such developments, K bank’s chief stakeholders — Woori Bank (13.79 percent), KT (10 percent), NH Investment & Securities (10 percent) and IMM Private Equity (9.99 percent) — are now discussing new methods of capital procurement.

K bank released a statement citing plans to first partially raise fresh capital by issuing new convertible shares. The bank’s shareholders would maintain their common shares at the current level. Once the FSC approves KT’s stake increase plans, the bank would pursue a bigger capital increase via a rights offering.

In addition, the online-only bank pledged to actively engage in efforts to invite new corporate entities capable of bringing in new capital to join the owner consortium.

Despite the proposed measures, it is uncertain as to when the FSC will resume its review of KT’s K bank ownership increase request. Moreover, The FTC’s investigation could possibly result in prosecutorial action, which would hurt KT’s prospects of an approval.

Attracting new investors may also pose a challenge at this point due to profitability concerns. Two new internet-only banks are set to be approved this year, posing as new competitors to K bank.

Despite the latest regulatory setback, K bank is not in any sort of immediate “financial crisis,” a bank official said, adding that the “capital procurement plans are merely a part of early preparatory procedures for the bank’s future business.”

K bank’s BIS capital adequacy ratio — the ratio of a bank’s capital to its risk-weighted assets — stood at over 16 percent as of end-2018, far above the mandated 10.5 percent threshold, he noted.

Nonetheless, K bank recently ignited concerns of fiscal instability when it scaled back some of its products following news of KT’s failed stake ownership increase.

It suspended a part of its loan and credit-based account products and also lowered interest gains on deposits from 2.4 percent to 2.1 percent.

K bank explained that the loan products were suspended as part of a renewal plan to add new benefits for customers. K bank customers can continue to enjoy generous deposit interest gains by meeting a small number of easy-to-meet conditions aimed at promoting the bank to wider audiences, a representative added.

By Sohn Ji-young (jys@heraldcorp.com)