Naver Corp., South Korea’s top online portal, is interested in buying Jeju Bank, named for and based on the country's largest island, to secure a banking license in a deal worth around 150 billion won ($136 million).
“Naver has expressed its intention to buy (Jeju Bank) and we held discussions,” a senior Jeju Bank official told Market Insight on Jan. 19. “Nothing has been decided.”
The news sent Jeju Bank shares to their highest level in nearly one and a half years on Tuesday, spiking 10.88% to close at 4,435 won. This compared to a 2.61% advance in the broader market.
Naver approached Shinhan Financial Group, which owns a 75% stake in Jeju Bank, to express its interest in the latter, according to sources with knowledge of the matter.
Shinhan has been seeking to sell its stake in the provincial bank, as part of efforts to shed its non-banking assets. Last year, the country’s No. 2 banking group tapped domestic financial institutions to offload the stake, but no progress on that front has yet been reported.
Shinhan acquired the 75% stake in Jeju in 2002. Its ownership is worth 110 billion won based on Tuesday’s closing price. Including a management premium, the possible stake sale is estimated at 150 billion won.
“Given that we have a number of banking licenses within our holding company, we are thinking about how to make better use of them, or dividing their work,” a senior Shinhan Financial official told Market Insight. Market Insight is the capital market news outlet of The Korea Economic Daily.
Shinhan Savings Bank is another arm of the banking group. The savings bank chalked up a net profit of 21 billion won in the first half of 2020, higher than Jeju Bank’s 17 billion won during the same period.
ATTEMPTS TO EXPAND INTO BANKING
Naver has been making efforts to evolve into a financial platform, alongside its expansion into the shopping and entertainment businesses. In 2018, the web portal operator began providing payment and settlement services through Naver Financial Corp., launched in partnership with Mirae Asset Daewoo Co.
Last year, Naver rolled out cash management accounts jointly with Mirae Asset. But its advance into financial services faced a strong backlash from banks who accused the online portal of providing bank-like services without a license.
Given the inhospitable environment, Naver appeared to turn toward directly securing a banking license through an acquisition, although it has never made public its intention to foray into the banking sector.
Founded in 1969, Jeju Bank has 34 offline premises, including 25 branches across the island and two other branches outside its home turf. The retail business, mostly interest income, makes up 90% of its revenue.
Despite Jeju Bank’s offline operations largely restricted to the island, increased demand for contactless services since last year is likely to help the Jeju-based lender boost its presence, the sources said.
STUMBLING BLOCK AHEAD
Current law prohibits Naver from controlling over 4% of a domestic bank. Industrial capital, which Naver is categorized as, is allowed to own up to a 10% stake in a Korean bank, of which it can exercise voting rights for only 4%.
To circumvent the law on separation of financial and industrial capital, market speculation is that Naver could use special purpose companies in which it has acquired a stake, or bring in financial services providers as co-investors.
Even if its negotiations to buy Jeju Bank falter, Naver is likely to make another attempt to win a banking license, according to the sources.
Other than selling Jeju Bank, Shinhan earlier considered converting the small lender into an internet-only bank to eventually transform it into a nationwide digital financial platform.
To do so, it had attempted to draw investments from big tech firms into Jeju Bank, but nothing materialized due to the banking industry's grim business outlook.
Now Shinhan is concentrating on building a financial platform led by its digital business unit, not by Jeju Bank.
Write to Chae-Yeon Kim, Soram Jung and Ji-Hoon Lee at why29@hankyung.com
