Tech firms set to raise stake in Korea's internet-only banks

IT firms will soon be allowed to hold as much as 34% stake.

Telco giant KT Corp and internet firm Kakao Corp are expected to increase their shareholding in the country’s two web-only banks as a law that relaxes the restriction on the amount of shares non-bank firms can hold in commercial banks is set to kick into effect by January 17, reports Yonhap News Agency. 

Tech firms can now hold as much as 34% stake in an internet-only bank after a bill submitted to the National Assembly enters into force. Previously, non-bank entities seeking to hold more than 4% of voting stock in the online-only lenders must first secure clearance from the Korean FInancial Services Commission.

Both launched in 2017, South Korea’s internet-only banks - kakaobank and Kbank have gained traction thanks to a tech-savvy population that accelerated the pace of internet finance in the country. Korea Investment Holdings works in close collaboration with popular messaging app Kakao to manage kakaobank's operations whilst K Bank is ran by telco company KT Corp.

Also read: Can South Korea's web-only banks break out of beginner's rut to ensure sustainability?

“This would be positive and will support growth of digital banks. Current law limiting voting stakes of non-bank corporates to just 4% has been a constraint to the capital raising and therefore the growth of digital banks in Korea,” Sophia Lee, senior credit officer, financial institutions group at Moody’s Investors Service said in an earlier interview.

The legislation would also help the country’s web-only banks who have been grappling with capital shortages on the back of heavy investments in IT infrastructure and hiring.