KakaoBank Corp
KRX:323410

Watchlist Manager
KakaoBank Corp Logo
KakaoBank Corp
KRX:323410
Watchlist
Price: 21 900 KRW 0.69%
Market Cap: 10.4T KRW
Have any thoughts about
KakaoBank Corp?
Write Note

Earnings Call Analysis

Q2-2024 Analysis
KakaoBank Corp

KakaoBank Reports Strong Growth Amid Strategic Focus on Lending and User Engagement

In the second quarter of 2024, KakaoBank achieved a record operating profit of KRW 318.2 billion, a 28% increase year-on-year, driven by a customer base growth to 24.03 million. Operating revenue rose 2% sequentially to KRW 734.1 billion, with fees seeing stable growth when excluding one-off impacts. The bank aims for a loan portfolio growth of KRW 2 trillion by expanding SOHO loans, while maintaining a net interest margin (NIM) guidance of 2.2% for the year. The delinquency rate remains low at 0.48%, reflecting strong risk management practices.

Strong Customer Growth and Operational Excellence

KakaoBank has demonstrated remarkable resilience and growth in the first half of 2024, boosting its customer base to 24.03 million with the addition of 1.19 million new customers year-to-date. This growth is underpinned by excellent risk management strategies, resulting in a notable operating profit of KRW 318.2 billion, a significant increase of 28% year-on-year. Such fruitful customer acquisition hints at a solid market presence and potential for sustainable revenue streams.

Revenue Performance: Marginal Growth Yet Stability

In the second quarter of 2024, KakaoBank reported operating revenue of KRW 734.1 billion, marking a 2% increase quarter-on-quarter. The revenue driver was primarily the growth in interest income and platform fees, although there was a slight dip in fee revenue due to a one-off settlement. Excluding this settlement effect, the underlying performance of fee revenue remained stable, reflecting the bank’s ability to adapt and maintain core earnings amid fluctuations in external factors.

Improvements in Funding and Deposits

KakaoBank's deposit balance reached KRW 53.4 trillion in Q2, up 1% from the previous quarter. Notably, the proportion of low-cost deposits escalated by an impressive 56.9%, enhancing the bank's funding structure. This shift, paired with a decrease in funding cost (down by 11 basis points to 2.31%), positions KakaoBank favorably compared to its peers, potentially contributing to improved profit margins.

Loan Growth Strategy and NIM Outlook

The bank’s loan portfolio amounted to KRW 42.6 trillion, reflecting a 3% quarter-on-quarter increase. KakaoBank aims to grow its targeted SOHO business owner loans significantly, with an expected net increase of KRW 1 trillion in loan balance this year alone, aiming for a total of KRW 2 trillion by next. The anticipated NIM (Net Interest Margin) guidance for the full year stands at around 2.2%, albeit this level could shift slightly due to changes in the economic landscape and market interest rates. The bank has experienced a slight decline in NIM to 2.17%, which is attributed to decreasing lending rates amidst a dip in market interest.

Focus on SOHO Loan Innovations

KakaoBank is keenly focusing on its SOHO loan segment, which alone represents a vast market with an estimated total scale of KRW 450 trillion. The bank is expanding its credit-backed loans and has introduced subsidized loan options for SOHO business owners, aiming to increase coverage nearly from 31% to 80% by 2025. Such initiatives not only anchor KakaoBank's position in the lucrative lending market but are integral to enhancing the diversified offerings tailored to small business owners.

Future Directions and Regulatory Environment

While KakaoBank continues to navigate regulatory constraints, particularly regarding household loan growth caps, the focus remains on corporate loans, especially within its SOHO offerings. The bank is exploring avenues to innovate financing methods and diversify its product range, establishing partnerships for areas like investment advisory services and integrating external services. This strategic pivot could enable KakaoBank to enhance its service lineup and foster user engagement while aligning with regulatory expectations.

Boosting User Engagement and Activity

Despite a noted temporary downtrend in monthly active users (MAU), the bank anticipates recovery fueled by seasonal factors and greater user acquisition. By enhancing benefits for users and ramping up its lending comparison service, KakaoBank aims to stimulate engagement significantly. The introduction of a new benefits section within the app further indicates a commitment to increasing user satisfaction and interaction.

Commitment to Corporate Value Enhancement

Looking towards the future, KakaoBank disclosed plans to implement a new corporate value program, which could include dividend payments and strategies for treasury share management. As the bank navigates growth alongside value creation, its focus remains on innovation and profit generation to deliver substantial returns while ensuring sustained economic utility to customers and stakeholders.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

from 0
Operator

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the earnings results of KakaoBank. This conference will start with the presentation followed by a Q&A session. [Operator Instructions]

Now we will begin the presentation on KakaoBank's second quarter earnings of the fiscal year 2024.

D
Dianna Kang
executive

[Interpreted] Good morning. This is Dianna Kang from KakaoBank's IR team. We will now begin KakaoBank's earnings call for the second quarter 2024. We are joined by members of management, including our CEO, Daniel Yoon; Vice President, [ Jay Kim ]; our Chief Operating Officer, Seok Kim; Chief Technology Officer, [ Conrad Shin ]; Chief Business Officer, [ Paolo Lee ]; Chief Strategy Officer [ Vesper Ko ]; Chief Risk Officer, [ Eli Lee ]; and Chief Financial Officer, [ Ted Kwan ].

The financial results contained in today's call are preliminary unaudited results based on K-IFRS and may be subject to change upon review by an independent auditor.

I will now hand over to Seok Kim, our COO, to present our second quarter business highlights and financial results.

S
Seok Kim
executive

[Interpreted] Yes. Good morning. This is Seok Kim from KakaoBank. Thanks to all of our investors and analysts joining us today for our second quarter 2024 earnings conference call. Let me take you through our first half 2024 key highlights on Page 3.

We continue to strengthen our already solid fundamentals, thanks to steady customer base expansion and stable risk management practices. Thanks to continued inflows of 1.19 million new customers year-to-date, our customer base now totals 24.03 million. Our delinquency rate also continues to improve as we maintain sound asset quality. As a result, we posted a record high operating profit of KRW 318.2 billion in the first half, which is an increase of 28% year-on-year.

Let me now take you through our second quarter results, starting from Page 4, which provides more details on our customer base. I think you can refer to that slide. And moving on to operating revenue on Page 5.

In the second quarter, our operating revenue totaled KRW 734.1 billion, up 2% Q-on-Q, driven by growth in interest and platform revenue. Fee revenue was slightly down Q-on-Q from the impact of one-off settlement. But when excluding the one-off, fee revenue also saw stable growth. Meanwhile, marketable securities, including MMF recorded KRW 49.9 billion in revenue, down slightly Q-on-Q. However, investment income from these securities increased on a Q-on-Q basis, which I will explain in further detail on Page 10.

Moving on to deposits, Page 6. So in the second quarter, our deposit balance recorded KRW 53.4 trillion, up 1% Q-on-Q. The portion of low-cost deposits increased by 56.9% Q-on-Q as we widened the gap versus the broad banking sector. The funding cost in the second quarter decreased by 11 basis points on the prior quarter, recording 2.31% as the temporary impact to our cost was alleviated following a change to accounting policy in the first quarter and also due to a fall in market rates.

Please refer to Page 7 for details on performance from our group accounts products as well as our new dollar box product, which was launched in June of this year.

Move on to page 8, our loans. In Q2, our loan balance totaled KRW 42.6 trillion, 3% -- up 3% Q-on-Q, driven by growth across all product categories, including SOHO business owner loans. The share of mid-credit loans was 32.5%, up 0.9 percentage points Q-on-Q. Second quarter NIM was 2.17%, down by 1 basis point from the first quarter from a decline in lending rates amid falling market interest.

Page 9. At KakaoBank, we have been increasing our guarantee backed loan coverage with the goal of steadily expanding our SOHO loan portfolio. In April this year, we launched our subsidized loans for SOHO business owners, where the interest is partially subsidized by municipal government, with plans to expand our SOHO subsidized loan coverage from 31% as of the end of June to 80% by 2025.

At the time of launch of our subsidized loans, we also rolled out integrated inquiry services for these subsidized policy loans, where we recommend different guarantee about products to best suit the customer with respective situation. We expect to reinforce product lineup and convenient offerings to contribute to portfolio expansion going forward.

Meanwhile, we're also planning to launch SOHO secured loans and credit loan greater than KRW 100 million in value, as this segment makes up more than half of the SOHO lending market, we plan to build an advanced process that can fulfill a wide range of lending needs among SOHO business owners with a high level of operational completeness, providing comprehensive coverage across different types of collateral while also supporting different financing needs from the borrowers.

Onto treasury management on Page 10. In the first half of 2024, our financial investments, which include bonds and beneficiary certificates or funds totaled KRW 14.7 trillion, up 7% year-on-year. Profit from financial investments recorded KRW 251.7 billion, up 22% year-on-year on stable fixed income investments and also increased investments in funds. Annualized yield based on average balance sustained uptrend momentum, reporting 3.45% in the first half.

And let me move on to Page 11 on our fee and platform business performance. Page 11, this is our -- on our loan platform. Our credit loan comparison service, which was launched in December 2023, has since shown stable performance expansion, helping reinforce our lending platform business.

The value and number of loans executed through the credit loan comparison service have grown by more than double on a year-on-year basis versus last year when we were offering just referral loans, up 25% in value and 18% in the number of executed loans, respectively, on a Q-on-Q basis.

Going forward, we plan on increasing the number of partnering institutions and improve the lending process to enhance the competitiveness of our service offering, which we expect to help further broaden our presence within the market.

Onto our investment context on Page 12. We, at KakaoBank have been broadening our presence in the investment context as well by strengthening our securities loan services, our IPO notification and scheduled inquiry service, which was last in July is the only such service in Korea, which connects processes necessary to subscribe to an IPO, such as schedule inquiry and account opening. Convenient functions such as calculating the number of expected a lot of shares, which were designed from the user's perspective have received positive reviews.

Alongside our securities account opening service and domestic and global stock trading service, we expect this new offering to help further expand the horizons of our users' investment experience on the KakaoBank app.

Page 13 covers our advertising business and mini performance. So please refer to the slide for details, and I'll be moving on to Page 14 on lifestyle benefits.

On Page 14. We have been strengthening our lifestyle context through an expanded lineup of benefit-based services that are closely linked to our users' everyday lifestyle. In June, we launched a Brand Coupon service, where users can purchase mobile gift certificates on our app as well as our telco payment plan comparison service to help users save on telco expenses.

In August, we will be completing our home screen renewal and incorporate a new benefit tab that will highlight all of these lifestyle benefit-related services, which will help boost the user engagement even further.

And please refer to Slides 15 and 16 on the continued details on our SG&A and operating profit.

Page 17, on asset quality. Second quarter delinquency rose by just 1 basis point Q-on-Q to 0.48%, thanks to stable risk management. Second quarter loan loss provisioning totaled KRW 55.6 billion, down KRW 4.1 billion Q-on-Q, thanks to stable portfolio expansion. As a result, our credit cost dropped by 7 basis points Q-on-Q, recording 0.53%, which is an improvement, 3 quarters in a row.

This concludes our financial results and business performance for the second quarter of 2024.

D
Dianna Kang
executive

[Interpreted] With that, we'll now move on to Q&A.

Operator

[Interpreted] [Operator Instructions] The first question will be presented by Ji-Young Kim from Kyobo Securities.

J
Ji-Young Kim
analyst

[Interpreted] Yes. This is Ji-Young Kim from Kyobo Securities. Thank you for delivering strong performance, beating our expectations. I have 2 questions. First, in reference to the full year guidance that you shared during the conference call for the first quarter, it seems to meet that guidance, you would -- because loan growth is expected to be minimal in the second half, you would have to see a significant improvement in NIM to be on track to achieve the guidance? Or are there any changes to your guidance?

Second question is related to the regulatory environment. It seems that the regulators are forcing continued control on household loans. So how do you intend to continue to grow your lending?

S
Seok Kim
executive

[Interpreted] Yes. Thank you for the question. So let me address your first question on changes to our guidance. So our guidance in terms of loan growth actually is the same and consistent with what we shared with you at the time of the last earnings call. And again, as we explained before, our guidance actually remains unchanged as we are firmly committed to supporting the government in enforcing a cap on aggregate household loan growth.

And then in terms of the overall NIM guidance, on a full year basis, at the last earnings call, we mentioned somewhere between 2.2% of our NIM guidance. However, recently, the drop in the market interest rate actually has been sharper than anticipated at the time in terms of the overall changes to the financial environment.

However, we are expecting our funding cost to continue to see steady improvement throughout the second half of this year. And so overall, on balance, we do expect our NIM to be able to achieve the 2.2% guidance. However, we potentially may be slightly off of this level given changes to the financial environment or depending on the changing environment. Still, we do believe that NIM will be higher in the second half versus the first half of this year.

Now regarding your second question on loan growth. So we have actually taken every opportunity in our communications with the market to emphasize that going forward, we want to continue to build our loan portfolio focused on SOHO business owner loans and other corporate loans as well.

So the size of the SOHO loan market is significant, amounting to about KRW 450 trillion in terms of total scale. We have already started with our credit and guarantee backed SOHO loans. And going forward, we'll continue to build up our SOHO loan portfolio, we're expecting a net increase of KRW 1 trillion in balance for this year. And on a -- and ending period average, ultimately, our goal is to grow the portfolio to KRW 2 trillion.

So as explained in our slide, we expect to continue to build out our SOHO loan portfolio throughout next year as we seek to achieve that KRW 2 trillion end balance target. We are preparing 2 major types of new SOHO loans. First would be the credit unsecured loans greater than KRW 100 million in terms of the lending value. Second, we are considering secured SOHO loans [ across ] different forms of collateral.

So as we grow our loans, at the same time, we want to take advantage of the traffic generated from our borrower or loan customers to continue to build up our platform business as well.

So we explained earlier about how the loan comparison service was effective in driving credit loan growth. So going forward, we intend to expand the scope of the different types of loans that are included on the comparison services to include mortgage loans, housing deposit or rental loans and also SOHO loans as well.

So again, our key priority is to grow our loan business, also leverage our loan traffic to build out our platform business as well and also expand our asset investment side, which we have been -- which we have been focusing on. And ultimately, we believe we will be able to achieve operating profit and net income growth that by far surpasses our loan growth.

D
Dianna Kang
executive

[Interpreted] Next question, please.

Operator

[Interpreted] The next question will be presented by Hye-jin Park from Daishin Securities.

H
Hye-jin Park
analyst

[Interpreted] Yes. I'm Hye-jin Park from Daishin Securities. I would also like to ask more about the SOHO loans that you mentioned. I do believe that this should be a key driver of loan growth going forward for you.

As of the end of June, in terms of your SOHO credit loans and the guaranteed loans, what is the split or the mix between the 2? And you explained plans to launch big sum credit loans for the SOHO owners above KRW 100 million. So the delinquency rate may be hard to manage with such a large sum loan amount.

So what was -- was there a compelling need to actually provide this kind of big sum loan? Do you believe that the delinquency ratio should be within a manageable level? And also, it seems that initially, we're planning to launch the SOHO secured loans at the end of this year. But you mentioned now the plan is for 2025. So what's the plan postponed?

S
Seok Kim
executive

[Interpreted] Yes, let me cover your questions. So in terms of the mix between SOHO credit loans and the guarantee letter backed SOHO loans, as of the end of June, it's 60% credit loans, 40% guaranteed loans. And as you mentioned, of course, managing the delinquency rate of the SOHO loans, may be a source of concern. So the market participants will be well aware of the delinquency rates that other Internet-specialized banks or commercial banks have recorded on similar type of products.

We believe that in terms of managing the delinquency of not only our guarantee backed SOHO loans, but also our credit SOHO loans. So far, we have delivered top performance in terms of the asset quality. In terms of the KRW 100 million or above credit loan, we believe it will be an essential addition to our product lineup as it will help build up a greater presence within the SOHO loan market, and also draw greater interest and attention from customers who are in the market for loans greater than KRW 100 million.

And then your last question was regarding the expected launch date for our SOHO secured loans. Well, this actually is relatively linked to the KRW 100 million or above credit loans. So the SOHO loans obviously are not household loans as they are classified as corporate loans and thus must fulfill certain requirements as corporate loans.

First of all, the use of the loan actually has to be verified, to check that it is consistent with the prepared business use. Also, due diligence has been conducted on the actual work site. Also, the ability to provide loans against different forms of diverse collateral also is a key consideration. So these 3 areas have to be reflected in terms of the improved characteristics of the product.

So again, for the KRW 100 million or greater SOHO loans, checking for the use of the loan proceeds will be a key part of the overall lending process. And so with that KRW 100 million loan, we will be able to check and verify the robustness of their process, which will actually be applied to the secured loans later on, which are of high value.

So previously, as we're preparing -- as we prepared for the launch of our home mortgage loan product, that process took longer than we had originally expected as well because additional processes such as setting up the collateral, running the appraisal to value the collateral, so those were required they took time.

Also providing for compliance to regulatory requirements by the government regarding households and specifically home mortgage loans and to reflect all of this into a non-face-to-face type product -- process takes lots of time.

So likewise, we have to digitalize the collateral valuation process ahead of launching our SOHO secured product. But unlike home mortgage loan, the collateral that can be put up by the SOHO borrower actually is much more diverse.

And RTI or other regulatory ratios that would be equivalent to DSR for household loans, also has to be adopted and implemented. So because of the combination of these various reasons, it is taking slightly longer than originally expected.

Operator

[Interpreted] The next question will be presented by Sinyoung Park from Goldman Sachs.

S
Sinyoung Park
analyst

[Interpreted] This is Sinyoung Park from Goldman Sacs. I'd like to ask about your user activity level. It seems that this may be the first time but we have seen a slight downtrend in your MAU. Is it for any particular reason? Or is it just that you have reached sort of limit in terms of potential growth?

In the past, any time this might have happened, you might try to boost the activity level by introducing new products or services, but at the moment, there is an issue of the eligibility of the largest shareholder that's currently pending, which may be a constraint.

So basically, how do you intend to boost user activity? And also, are there any other business areas that you can potentially move into taking advantage of currently available licenses that you already hold?

S
Seok Kim
executive

[Interpreted] Thank for your questions. Let me take them one by one. So first, regarding MAU metrics on user activity. So internally, we have observed the same phenomenon which were subject to review, and we have reached 2 conclusions. We think there is a big seasonality factor involved.

So in terms of the metrics that we are tracking in July, it's actually moving well above recovery levels, in fact, showing significant growth upside. So we believe any contraction before was due to seasonality in part.

And then the second may be a bigger factor. But in the second quarter, loan products originated by KakaoBank actually decreased significantly versus the first quarter. So a key learning or takeaway for us with that between the origination of our own loan products versus loan-related traffic that between the 2, there was a significant correlation or link.

So reflecting these 2 factors, although the loan or our self loan origination amount may have gone down, nevertheless, in July, we have observed a significant pickup in traffic for various service offerings, including our loan comparison service. And so this shows that our user activity level is actually not stagnant, but it will be a function of how much effort we make, but we do see potential for upside in the activity level.

So as we explained in some of the slides, we will be introducing a new benefit tab to our app screen page as we strengthen the benefits that we offer to our customers. And so as we generate more financial transactions and strengthen our benefit services to our users, if anything, we believe that there is significant upside in terms of the customer activity level beyond current level, and this will continue to be driven or fueled by sustained inflow of newly acquired users.

And then regarding your second question, in terms of other business areas that we could potentially move into. So the status right now is not that different versus what we explained last fall. So the business areas that we will be limited in terms of moving into on account of the large shareholder eligibility issue are quite limited. So specifically, the limited business areas are only the credit card business, my data business and the CD business only.

So for other business or service areas and domains, if you look at the respective governing laws, there are no provisions that specifically stipulate that their restriction. It is largely up to the discretion of the regulatory authorities in terms of issuing additional licensing approval.

So as more concrete examples, we believe that we can advance into the investment advisory business. Also the bancassurance or insurance-related business area, there are no special constraints there either. And we are interested, of course, in collective investment -- investment business overall, which we have already acquired a license for, and we are distributing fund products already.

But if you look at regulations for the trust investment, for example, we also believe that we will be able to advance into the trust business space subject to consultation or discussions with the regulatory authorities, but we do believe it is possible. But at the same time, although we continue to make these efforts to acquire individual licenses, a bigger effort is being placed on partnerships with other financial institutions, for example, that already hold existing licenses or other collaborative opportunity.

So for example, we may have mentioned this last time, but because we cannot directly acquire a license in the credit card business, for example, we are working proactively with existing credit card companies and our incurrence negotiations with some of the players to provide what is essentially equivalent services, same as a KakaoBank branded credit card would be that would be available on our app.

And we are also looking with great interest in areas regarding financing innovation or innovative finance, which is one area promoted by the regulatory authorities. Also, we are looking potentially at the super app initiative in partnership with other existing service providers. And so we are in talks and discussing potential -- with potential partners about potentially adding on areas, external services on top of our service lineup.

Operator

[Interpreted] Because of the time, this will be our last question. The last question will be presented by Kwang Myung Jung from DB Financial Investment.

K
Kwang Myung Jung
analyst

[Interpreted] This is Kwang Myung Jung from DB Financial Investment. I just have one question. You filed a disclosure today, I believe, plans to enhance your corporate value. I think the overall orientation may be slightly different from that of other Internet-only banks. So if you could explain further about the direction?

S
Seok Kim
executive

[Interpreted] Yes. Thank you for the question. So as we disclosed earlier today, we are planning to disclose our value program subject to approval by the BOD, of course, later this year in the fourth quarter. So as you may already be thinking, our value program, of course, will include dividend payments, also how we intend to -- what we intend to do with treasury shares that we already bought back. But unlike other existing banks, for us, we believe that growth has to be a key word for us.

From the user's perspective, we have to continue to improve usability and the innovativeness of our service offerings, so that we can continue to provide incentive for the users to continue to want to use our services. But then for us as a company, we should not stop there just improving overall usability as we have to continue to focus on achieving growth that at the same time, where we continue to provide sustainable economic value and utility.

So the value program that will later be shared, of course, will include detailed financial numbers, including ROE, ROA and CIR, which may be of interest to the margin. But I think more importantly, the program will explain how we intend to achieve greater efficiency in terms of our commission or loan-to-deposit margin to deliver overall social utility or benefit to society at large, how we intend to help shape more inclusive financing by continuing with sustained supply of mid-credit loans, for example. So we believe that we will be able to share a very compelling program with the market later on in our official communication.

Operator

[Interpreted] Yes, with that, we conclude the second quarter 2024 earnings call for KakaoBank. I'd like to thank all of our analysts, investors and the media for your time today. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

All Transcripts

Back to Top