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Digital banks make inroads in South Korea

The emerging digital banking sector in South Korea, led by KakaoBank, is racing ahead of the incumbents. Kimberley Long reports.
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Banking in South Korea has remained largely stable on the 2021 results, with the notable exception of the digital banks. On a macro level, the country enjoyed a year of gross domestic product growth, reporting an increase of 4% for 2021, significantly up on the 0.9% decline recorded for 2020.

KB Financial Group (KBFG) retains its spot as the largest bank in the country, with a 5.1% increase in Tier 1 capital, to $35.65bn. However, this was not enough for the bank to maintain its rank in the Top 1000; it fell two places on last year’s results to 62nd. While the bank’s pre-tax profits rose 17.1%, it saw its total assets decline by 0.3%.

There is very little difference in Tier 1 capital between the top three banks in South Korea. KBFG is closely followed by Korea Development Bank (KDB) and Shinhan Financial Group in 63rd and 64th places, respectively. While KDB retained its 2021 position, Shinhan fell three places as its Tier 1 capital only increased by 2.2%, to $34.08bn.

Indeed, the top nine banks have not changed much in terms of their country positions. However, in 10th place is the online-only KakaoBank, which moves up the country ranking from last place in 2021. The bank was a new entry to the ranking in 2021, jumping in at 464th place, and this year has leapt to 317th, thanks to an impressive 82.1% increase in Tier 1 capital, to $4.60bn. This success is unsurprising, considering the bank’s huge success in its home country, with its 2021 full-year results showing 18 million users, and a Won256.9bn ($200m) operating profit, representing a 110% increase on 2020’s results.

This rise saw the bank rank 11th in the top 25 highest movers table and second in the Asia-Pacific (excluding China and Japan) highest movers table. KakaoBank also enjoys having the highest pre-tax profit growth in South Korea, at 92.4%. The result was double the 45.8% seen by Industrial Bank of Korea, the next best, and significantly better than the decrease of 10.75% recorded by KDB — the worst result recorded in the country of the domestically-owned banks.

However, it is the traditional banks that excel in the best-performing table. At the top of the table is KDB, which takes first place for leverage, soundness and operational efficiency. However, it is fifth-placed Woori Financial Group that takes the top place for growth and profitability; it recorded a 71.8% increase in pre-tax profit. Woori is also first for asset quality and return on risk.

During 2021, the South Korean Financial Services Commission announced that the Korea Deposit Insurance Corporation was selling off 10% of its remaining stake in Woori through a competitive bidding process. The winning bidders were five different groups including private equity and asset managers, and Woori Financial Group’s employee stock ownership association.

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Kimberley Long is the Asia editor at The Banker. She joined from Euromoney, where she spent four years as transaction services editor. She has a BA in English Language and Literature from the University of Liverpool, and an MA in Print Journalism from the University of Sheffield. Between degrees she spent a year teaching English in Japan as part of the JET Programme.
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