Tag: korea

  • Why Toss Bank had a stellar Q3

    Why Toss Bank had a stellar Q3

    Korean digital banks tend to be a cut above the industry standard, and Toss Bank is no exception. Leveraging the broader Toss super app’s 10 million monthly active users (MAU), the company has successfully integrated payments, stock trading, and lending, improving profitability and user engagement.

    While most tech companies outside China have struggled to build super apps, Toss has developed a digital financial services platform that checks many of the boxes. “When we launched our flagship money transfer service, it was loved by so many users, so we were able to grow very fast. We quickly realized that all the other vertical sectors of finance were not covered by other players,” Toss founder Lee Seung-gun told Fortune magazine in April. “There has been a huge void in the Korea market, so we were able to capture those opportunities.”

    As it heads toward a 2026 IPO in the United States (that of its parent company, Viva Republica), Toss is riding high, posting record earnings in the September quarter by focusing on both strategic growth and operational efficiency. Toss’s performance is all the more impressive when one considers some of its competitors are facing significant headwinds.

    The bank’s cumulative net profit in the September quarter was 81.4 billion won, an increase of 136% compared to the same period last year. Toss has sustained profitability for several consecutive quarters, signaling a stable growth trajectory.

    At the same time, its total customers now exceed 14 million. This expanding user base provides a strong foundation for various financial services within the Toss ecosystem.

    Toss Bank successfully grew both its interest and non-interest income in the third quarter. Non-interest income jumped 52% annually to 129.6 billion won, driven by an increased inflow of funds and growth in operating capabilities. Net interest margin (NIM) slightly increased to 2.56% from 2.49% a year earlier, indicating efficient management of interest-earning assets and interest-bearing liabilities.

    Additionally, Toss’s loan and deposit balances both experienced steady growth, suggesting effective liquidity management. The balance of loans was approximately 15.45 trillion won, while the deposit balance reached 30.4 trillion won. Despite an expansion of loans to mid-to-low credit borrowers (the highest proportion among internet-only lenders), the bank improved asset stability by increasing the proportion of guaranteed products like jeonse (housing rental deposit) loans and private business guarantee loans.

    Toss continues to broaden its product portfolio as well. In early December, it announced that it would soon (possibly by January) launch a service that allows direct foreign currency transfers to bank accounts in major overseas countries. Toss Bank plans to provide a “one-stop” service that allows customers to exchange, hold, and transfer foreign currency through a single platform. The currencies eligible for overseas transfers are expected to include the U.S. dollar (USD), euro (EUR), Canadian dollar (CAD), Australian dollar (AUD), Singapore dollar (SGD), Hong Kong dollar (HKD), and British pound (GBP).

    Looking ahead, Toss’s parent company, Viva Republica, will begin gearing up for its expected second quarter 2026 IPO. Viva Republica is eschewing a domestic listing in South Korea to seek a better valuation overseas. While the company seeks a valuation of more than US$10 billion, it could potentially be valued at more than $15 billion if market conditions are optimal. The deal is expected to raise between US$2 billion and US$3 billion.

    Viva Republica has the benefit of hindsight, having observed its competitor Kakao Bank rush to go public during the early 2020s pandemic-fueled tech boom, only to see its valuation plummet as investors in public markets had doubts about the inflated valuation pushed by Kakao and its heavyweight backers. To date, Kakao Bank’s share price has fallen more than 68% from its August 2021 market debut.

    While it is important to seize the day, good things come to those who wait.

  • Why the K Bank IPO is a crapshoot 

    Why the K Bank IPO is a crapshoot 

    South Korean digital lender K Bank has been talking about an IPO for years, literally. Since 2022, the company has twice aborted plans to go public. In early November, it formally filed for a third time, aiming to go public in the first half of 2026 on the Korea Stock Exchange (KOSPI). Both the company and investors are hoping this third time is the charm.

    In some ways, K Bank is stuck between a rock and a hard place. On the one hand, it is bound by a conditional rights offering from May 2021 that requires an IPO by July 2026. Investors, including Bain Capital and MBK Partners, injected 725 billion won into the South Korean digital lender at that time under the condition that if the IPO does not happen by July 2026, they can exercise their “drag-along rights” to sell their shares as well as those of top K Bank shareholder BC Card to recover their investment.

    While BC Card secured a “call option” back in 2021, which gives it the right to buy back the shares of the other K Bank investors first, doing so would be expensive. BC Card would probably have to pay 1 trillion won (almost 63% of its own capital) to cover the investors’ initial 725 billion won plus an 8% promised internal rate of return.

    Because of that promised 8% annual return, K Bank needs to achieve an IPO valuation of 4-5 trillion won, which is ambitious given its financials. K Bank posted a record quarterly profit of 68.2 billion won in the second quarter, but that figure fell to 19.2 billion won in the third quarter, down 48% year-on-year.  Net profit in the first nine months of the year also dropped by 15.5% year-on-year to 103.4 billion won.

    However, K Bank has performed well overall in recent years. Its 2024 net profit of 128.1 billion won was nearly 10 times as large as its 2023 profit of 12.8 billion won. It also had 12.74 million customers by the end of 2024.

    The Asia Business Daily noted that K-Bank’s target price-to-book ratio (PBR) for its desired IPO price is 2.5 times, well above the Kakao Bank PBR of 1.6 times. To reach its target IPO valuation of 4 trillion to 5 trillion won, “K Bank must prove its platform value exceeds that of Kakao Bank,” the newspaper said. “However, it remains uncertain whether the market will view K Bank as a platform company.”

    It is true that Kakao Bank achieved a whopping 18.5 trillion won IPO valuation when it listed on the KOSPI in November 2021, but that was at the height of a tech startup bubble that rapidly deflated after the company went public. Kakao Bank’s stock has lost almost 70% of its value since the IPO.

    Meanwhile, regulators are probing K Bank’s close ties with leading South Korean cryptocurrency exchange Upbit. K Banks has had a real-name account partnership with Upbit since 2020.  

    The financial authorities plan to closely review whether K Bank has thoroughly detailed investment risk factors, including its concentration of funds from Upbit, in the securities registration statement. Regulators are evaluating the possibility of a temporary liquidity issue at K Bank if the Upbit partnership were to end and what the bank’s contingency plan would be.

    Auguring well for K Bank is that it has significantly reduced its Upbit exposure in recent years. The partnership began in June 2020, and by 2021 K Bank was reliant on the cryptocurrency exchange for about half of its deposits. However, as of the second quarter this year, of Kbank’s total deposit balance of 26.8 trillion won, about 4.4 trillion won (16.42%) are Upbit escrow funds, compared to 50% in 2021.