Why did K Bank postpone its IPO again?

South Korea’s No. 2 digital bank K Bank has postponed its IPO plans yet again, after seemingly having committed to a listing in the near future. This development comes as something of a surprise. K Bank posted a net profit of 85.4 billion won (US$64 million) in the first half of this year, the highest since its establishment and more than thrice as much as during the same period a year ago. It seemed that the company had adequate momentum to finally go public. However, looking at a few aspects of K Bank’s business model, we can see why it is delaying the IPO again.

In the past, K Bank put off IPO plans due to concerns about market conditions. In an era of high interest rates and inflation, as well as macroeconomic uncertainty borne of geopolitical tensions, it makes sense to be cautious. Yet one can also argue that there never will be a perfect time for a company to go public. And if K Bank waits too long, it is possible investor interest will wane.

Ironically, according to a recent regulatory filing by K Bank, the reason the South Korean online lender is choosing to not go forward with the IPO at this time is insufficient investor demand. K Bank plans to revive the IPO early next year after changing details such as the number of shares on offer, the company said in a separate statement.

K Bank had been targeting a valuation of 5 trillion won and sought to raise 984 billion won. The valuation was already a significant decrease from the 7 trillion won it was targeting during its initial IPO plans in September 2022. 

One challenge for K Bank as it prepares for an IPO is that it has become somewhat dependent on cryptocurrency for growth. It is estimated that K Bank currently has about 5 trillion won (US$3.6 billion), in deposits from South Korean crypto exchange Upbit – so about 20% of overall deposits.

Meanwhile, in early October, South Korean media reported that Upbit is being investigated by the country’s Financial Services Commission (FSC) for potential anti-monopoly breaches. That investigation come as the relationship between Upbit and K Bank is facing scrutiny from South Korean lawmakers. Given the risks posed by K Bank’s crypto dependency, lawmaker Kim Hee-gon said in late 2023 year that “at this point, it isn’t an exaggeration to say that K Bank has degenerated into Upbit’s private treasury.”

South Korean lawmakers and regulators are likely concerned about what would happen to K Bank’s customer deposits in the event of a serious problem at Upbit. While Upbit has not suffered a serious security breach since 2019 when it lost about US$49 million, one wonders how long its luck can hold.

Thus far, Upbit has not commented on the investigation mentioned above, and how that investigation proceeds will likely be crucial to K Bank’s IPO prospects. In the coming months, K Bank will find out if its gamble on cryptocurrency to drive growth was the right strategy or a mistake.