KakaoBank Corp. (323410.KS) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you, everyone, for joining us at the KakaoBank's conference earnings call. We will start with a presentation by KakaoBank, which will then be followed by a Q&A session with today's participants. [Operator Instructions] With that, we will now begin the earnings call for KakaoBank for the fourth quarter 2025.

Good morning. This is Dianna Kang from the KakaoBank's IR team. I'd like to thank all analysts and investors for joining us today at our earnings conference call. We will proceed with a presentation by management via simultaneous translation, followed by a Q&A session through consecutive translation. [Operator Instructions] And with that, we will now begin KakaoBank's earnings call for the fourth quarter of 2025. Today, we are joined by members of management, including our CEO, Mr. Daniel Young; Vice President, [ Ruth ] Kim; Tae Kwon, our CFO; Sean Kim, Head of the Banking Group; [ Vesper Ko ], Head of the AI Group; Paolo Lee, Chief Business Officer; Conrad Shin, Chief Technology Officer; Buddy Song, Head of the New Business Group; and [ Eli Lee ], our Chief Risk Officer. Today's earnings release is based on K-IFRS and have been prepared prior to review by an external auditor for the purpose of providing timely information on the company's operating performance. Accordingly, the contents are subject to change depending on findings from the auditor's review. I will now hand over to Mr. Tae Kwon, our Chief Financial Officer, to present our fourth quarter business highlights and financial results.

Yes. Good morning. This is Tae Kwon from KakaoBank. I'm the CFO. Let me take you through our key highlights for the fourth quarter 2025 on Pages 3 and 4. Our core competitive strengths lie in our customer base and deposit, and both showed solid momentum in 2025, increasing by 1.82 million year-on-end with our deposit up 24% year-on-year. Despite a challenging external environment, loans also grew at approximately 9%, close to our original plan. In addition through rigorous risk management, our credit cost ratio declined by 10 basis points year-on-year, maintaining stable levels. As a result of this expansion of our customer base and disciplined internal management, operating profit in 2025 increased by 7% year-on-year, recording KRW 649.4 billion. Next, on to Page 4. In the fourth quarter, we also achieved positive progress in the global and ESG front. Superbank, which is an equity investment in Indonesia, ramped up customers very rapidly and turned to profit and in December, successfully listed on the IDX Exchange in December, leading -- or at a very high [ valuation ]. Furthermore, we demonstrated improvements across areas such as personal data and information security, financial consumer protection and Board independence and the MSCI ESG assessment earning the highest rating of AAA. Page 5, our customer base. As of the end of 2025, customers totaled 26.7 million, increasing by 1.82 million YTD. MAU and WAU was 20 million and 14.7 million, respectively, both at a record high as we continue to see engagement with customers go from strength to strength. Page 6. In the fourth quarter, a key driver of customer inflows was My Kids Service�, which was newly launched in September last year, where parents could subscribe on behalf of their children. This was a major contributor to user growth in the fourth quarter. As word got out about the competitiveness of this product, we achieved a penetration rate of 10% in the age 0 infant segment within just 4 months from launch. My Kids Service� card account balance has also been rising quickly since launch and is expected to help boost future inflows while also expanding our deposit balance in the long term. Next, operating revenue on Page 7. Q4 operating revenue was KRW 759 billion, up 2% year-on-year, thanks to interest income growth. On a Q-on-Q basis, despite increase in interest income from loans and platform revenue, rising market interest resulted in a decline -- a slight decline in valuation gains on funds. Page 8, our deposits. In the fourth quarter, our deposit balance was up 24% from the end of 2024, recording KRW 68.3 trillion. In the fourth quarter, notably, we had the launch of our retirement pension time deposit product as we saw strong onetime inflow of saving deposits at once. This did push down the share of low-cost deposits, which was down 57 -- or down to 57.1%. Nonetheless, our low-cost core deposit share remains higher than the broad banking sector. Our funding cost was improved by 10 basis points Q-on-Q, driven by the repricing effect of savings deposits. Page 9. The number of group account users, which is a key pillar of deposit growth, reached 12.5 million, up 10% year-on-year, expanding faster versus our overall customer growth. Our group account balance is also growing at a much steeper pace than the increase in user numbers, clearly demonstrating that our group account users are highly active users with strong product engagement. On to loans, Page 10. In the fourth quarter, driven by growth in policy-backed loans and SOHO business loans, our loan balance increased by 9% year-on-year. The non-face-to-face Bogeumjari Loans, which were launched in July 2025, quickly gained traction, while our SOHO loan balance increased by KRW 1.2 trillion from the end of 2024, growing to 6.5% of the total loan book. Meanwhile, in the fourth quarter, our net interest margin improved to 1.94%, up by 13 basis points Q-on-Q. Meanwhile, our full-year NIM was the same at 1.94%. The improvement was driven by a wider net interest spread on lower funding costs and an uplift in our liability-to-asset ratio from loan growth. On to Page 11. Starting in December in partnership with Jeonbuk Bank, we launched Together Loan, which is an unsecured joint personal loan product. Offered as an innovative financial service, the entire process from loan application to management comp is completed seamlessly within the KakaoBank app. And through this model, we are able to generate both interest income and fee income, establishing a more diversified and strengthened revenue model. Meanwhile, we are also steadily building out our SOHO loan portfolio. Initially, upon launch, we started out with a single unsecured loan, but then have since broadened our lineup to non-face-to-face guarantee-backed loans in 2023 and property-backed secured loans in 2025. As of the end of 2025, secured- and guaranteed-backed loans combined account for 67% of the portfolio as we seek stable expansion of SOHO loans. On to treasury management, Page 12. In the fourth quarter in terms of our treasury management, the average balance in our AUM decreased as we sold short-term securities to support loan growth. Also, towards the end of December as market rates rose, this led to reduced valuation gains on funds, which were down. And overall, treasury management profits were down by KRW 37.2 billion Q-on-Q, recording KRW 143.9 billion. In 2026, we plan to continue managing our portfolio with due consideration to the loan-to-deposit ratio and market conditions while contributing to overall profitability through diversification of products and asset management strategies. On to Page 13 and 14, despite limited overall growth in the loan comparison service segment, we continue to strengthen our market presence by expanding the number of partners and broadening our product lineup. In Q1, we plan to further widen customer choice within the loan comparison platform with the launch of a refinancing comparison service for small business owners. As for the investment platform, our MMF box, which surpassed KRW 1.1 trillion in balance within 6 months of launch, has become a key anchor, serving as a gateway that connects customers to a wider range of investment products. Meanwhile, advertising revenue has also been growing meaningfully as the business expands beyond simple placement and impression-based models to performance-driven offerings. As you can see, the platform business continues to be strengthened around three core pillars: loan comparison services, investment and advertising. Over the mid- to long term, we aim to establish ourselves as a one-stop marketplace of choice for customers by offering a broad range of services and diversified revenue models. Please refer to the individual slides for further details. On to AI services, Page 15. Throughout 2025, at KakaoBank, we have launched a wide range of customer-facing AI services, including AI search, AI financial calculator and LLM-powered consultation chatbot, AI transfer and AI group treasurer as well. In December, these AI services were integrated into a unified AI platform, accompanied by a dedicated AI tab on the home screen to enhance further convenience and accessibility. We are actively expanding the application of AI across our services and are continuing to make ongoing efforts to evolve into an AI-native bank that proactively delivers value at the moment that our customers needed the most. On to Pages 16 and 17. In the fourth quarter, SG&A declined 13% year-on-year, the biggest impact coming from labor costs, which decreased by more than 30% year-on-year. Overall, operating profit for the fourth quarter recorded KRW 145.1 billion, up 26% Y-o-Y, with full year CIR recording 36.9%, up by 0.5 percentage points from the end of 2024. This concludes our presentation on key business highlights and financial performance for the fourth quarter 2025. Thank you very much. We will now move on to our Q&A session.

Now Q&A session will begin. [Operator Instructions] The first question will be provided by Sinyoung Park from Goldman Sachs.

This is Sinyoung Park from Goldman Sachs Securities. I will be asking first on the loan growth side. It seems that you have seen quite a pickup in terms of your home mortgage secured loans. Do you believe that this kind of loan growth is sustainable? And SOHO loans were launched last year in October. These are SOHO secured loans. What has been the market response so far? And at what point do you think you should see some kind of a meaningful pickup in growth? I ask because other companies actually have been expanding their SOHO lineup this year and some have mentioned a loan growth target of 20% or so for 2026. So if you could provide your target in terms of loan growth this year, also the lending mix, I would appreciate it. Second is on the global side. Given constraints to growth in the domestic market, it seems that the 2030 ROE target of 15% that you mentioned as part of your value program does feel a little bit distant and remote. You did mention the successful listing of Superbank. But overall, how much of a financial contribution are you expecting from the global business side? And if you could comment on the capital allocation or deployment, I'd also appreciate that as well.

Yes. Thank you for the question. First, in terms of loan growth over 2025, we did see 9% year-on-year loan growth, mostly driven by policy-backed loans, including Bogeumjari Loans on the household loan side, also SOHO loans for self-employed business owners. So we see this as a breakthrough for growth despite the overall challenging environment. In 2026, we do expect regulations to continue to control lending demand, obviously, for the purpose of stabilizing the housing market. And amid that backdrop, we intend to manage strategy similar to 2025, where we will grow our loan book driven by policy-backed loans and also mostly SOHO loans. So overall, in terms of our target for loan growth this year, it will be consistent and more or less in line with last year or 2025 levels. Moving on to the second question, so in terms of moving toward our 15% ROE target, well, we intend to move forward in line with our growth plan as we explained as part of our value program. So by maintaining strong traffic and engagement from our customers, we will continue to achieve strong growth in terms of our core deposits as a key underlying driver of growth and also grow our asset side as well, driving growth across our platform through various monetization initiatives. We're also pursuing inorganic growth opportunities as well. We are in the process of actively pursuing possible M&A targets in the payment and settlement space and also among capital providers. So acquiring a capital lender would be quite positive as it would give us new access to a part of the market where as an Internet bank, we previously were not present. So although given the rising rate environment that we have come through, the profitability is more muted, considering in the past how high the ROE was for the capital business, we think that if consummated, it could make a positive impact to our financial. And then moving on to the third part of your question, so leveraging our experience in mobile banking and also our key underlying technology, we want to advance more into the global markets to further enhance our overall corporate value. As one good example is Superbank, which is an investment that we made in Indonesia. It turned around to positive profit just in 1 year from launch, recording 8.55 million users and also net profit of 8.5 billion as of the end of 2025 as it sustains good growth momentum. And most recently, following the IPO in February to -- February 2, we actually terminated our existing shareholder agreement with Superbank and the accounting treatment was also transitioned from equity method gain to FVOCI. And as a result, we recognized 93.3 billion in valuation gain, also 67.6 billion in net profit for the first quarter. And building on this successful reference case of a successful investment in the global market, we expect continued positive financial impact from these types of overseas initiatives.

The following question will be presented by Do Ha Kim from Hanwha Investment & Securities.

Yes. So I would like to first ask about your NIM profile. Could you provide more color in terms of the underlying NIS, the reduced funding costs? Also given the regulatory environment and the recent money move, could you provide your guidance and expectations for margins this year? Second question is regarding the reason for the significant drop in your labor cost in the fourth quarter. Was it due to a change in your accounting treatment? Because in terms of your headcount, if anything, I think you had a bigger net increase than prior quarter. So if you could explain.

Yes. Let me take your NIM question first. So in the fourth quarter, our NIM did improve largely on two drivers. First, we saw a widening net interest spread as funding costs declined from repricing of our savings deposits. So that's one. And then our liability-to-asset ratio increased quarter-on-quarter from loan growth. And so overall, our NIM improved by 13 basis points. In terms of attribution between the two drivers, the widening NIS was responsible for 6 basis point improvement; the liability-to-asset ratio, 7 basis points. So in terms of the NIS breakdown, although the asset yield itself declined by 4 basis points, this was largely offset because our average funding cost decreased by more -- by 10 basis points. And our projection for NIM in 2026. While the outlook for the benchmark policy rate is unclear for 2026, under the assumption that the current benchmark rate is maintained, we do expect 2026 NIM to rise slightly versus 2025. And then may I comment briefly on the outflow to the equity market? So while we are seeing some trends amid the equity market rally of some movement into the equity market, for KakaoBank, however, our current account balance actually is rising. This includes the group accounts. And if you look at the deposit balance as of January, that has also risen relative to the end of December. So we're continuing to see solid inflows. So we continue to see growth in our demand deposit base. Our group account as a key pillar is continuing stable growth. Also as we diversify into more customer segments, SOHO loans, for example, have seen -- or excuse me, current deposits also have seen solid growth as well. And we are continuing to increase our lineup -- this year, we had the My Kids Service current account or that was last year. And this year, we are also going to introduce new products for foreigners, also for FX deposits as well. And so this will add to our very stable demand funding base. And we expect stable growth in terms of our net funding growth this year as well as we continue to add on to our funding product lineup. Obviously, we had the new retirement pension current account product that was newly out. So as we add on to the lineup, this will also drive continued growth. And then I think there was another second part to the question. Yes. Let me explain the labor cost reduction in the fourth quarter. So SG&A in the fourth quarter declined by 12% Q-on-Q and by 13% Y-o-Y. So this is due to a one-off reversal of around KRW 20 billion. So previous labor expense estimates that were allocated pro rata across all of the quarters reflected the real -- the actual number as of the fourth quarter. And so with new estimates produced, this led to, again, a one-off write-back of about KRW 20 billion. So that being the case, this has no bearing on future earnings P&L.

The following question will be presented by Jaewoong Won from HSBC Securities.

Thank you for delivering strong performance despite the difficult environment. I also have some questions on the global business side, which were partially covered by the others, but I wanted to ask a little bit more for clarity. So is it for the Indonesian bank -- so I think there was a number, 33.3 billion or so in net profit that will be recognized. So will that be recognized as of the first quarter of next year -- the next fiscal year, I mean 2026? Also the nonbank revenue, will that also be recognized? And then the Indonesian bank turned around to positive last year. So starting the first quarter of 2026, will you be consolidating or recognizing equity method gains effective as of first quarter? So if you could just clarify. And then quite impressive in terms of your fourth quarter performance was the improvement in NIM and reduced funding costs. Could you provide more details in terms of just why the funding cost declined? Because it does seem that your low-cost deposit as a share of deposits actually went down a little bit, while time deposits went up slightly. So is it like higher weighted legacy deposits, are they rolling off of the book upon maturity? And so that is an outflow, whereas you're seeing new inflow from your retirement pensions time deposits? Is that why? So is it basically because of this kind of repricing effect? Could you explain?

Yes. Let me address the first question first. So in terms of our equity interest in Superbank, in the past, we did apply equity method valuation. But recently, upon termination of the existing shareholder agreement, the accounting method was changed from equity method to fair valuation or fair value through OCI. So going forward, as Superbank's share price changes on the exchange post its IPO, that kind of change in share value will not be reflected in our P&L. It will actually go toward our AOCI. And your second question, so in the fourth quarter, our net interest spread improved by 6 basis points. And as a part of NIS, the funding cost improved by 10 basis points. So as I mentioned in the presentation, the main reason for the reduced funding cost is due to the repricing of saving deposits. So again, the biggest factor was the repricing of our deposits for both term and free term type deposit products. So if you look at the deposits that are rolling off upon maturity, they actually carried higher rates, whereas the newly secured deposits offer lower rates. So this led to widening of the interest spread.

The following question will be presented by Jun-Sup Jung from NH Investment Securities.

Two questions from me. So during your presentation, you did mention the new My Kids Service. It was quite impressive to see how you were able to ramp up penetration very quickly. Could I get an idea of the account balance at the moment? And then it does seem that the share of low-cost deposits has gone down some. Is that somehow connected to the My Kids Service? Or if that's not the case, what other reason is behind the slight decline? Second question is in the same context, but could you introduce some new planned services or offerings that are in the pipeline for 2026? You did mention the M&A, but in terms of services, I'd like to know more.

Yes. Let me answer the first question. Yes. So for My Kids Service, this is the type of service that can be used by both the children and the parents alike. And we have seen a very rapid ramp in terms of the number of users since launch, 100,000 in month 1, 300,000 by month 3, 500,000 by month 4. So we are really expanding our market presence very quickly. In terms of the balance, we have surpassed the KRW 50 billion mark. So market services include not only installment deposits, but also current or time deposits. And between the two, the mix, we're seeing more inflows into the time deposit side rather than installment savings. So the ramp-up in market services, I don't think, is associated with the declining share of the low-cost deposits. And let me explain more about the reduced share. So in the presentation where you see mention of our funding cost, this is actually based on EOP or end-of-period basis. But in terms of funding cost, this is based on average balance figures. So that explains the discrepancy. In particular, for the retirement pension-type deposit product, which was launched -- or there was a concentration of that inflow towards the end of the year, which in part led to the decreased share of low-cost deposits. However, this did not impact the average balance and ultimately, our funding costs overall improved. And the new retirement pension-type deposit product is quite favorable for us as it is not subject to contribution in the deposit insurance scheme. And so relative to other funding means, this is more conducive toward future reduction in funding costs.

The following question will be presented by Sinyoung Park from Goldman Sachs.

Yes. I would just like to ask some follow-up questions. I think in your previous communications, you talked about double-digit growth or CAGR of 20% for your fee and platform revenue for this year and next year. Overall, the current year 2025 was relatively sluggish. So what are you looking at or expecting for 2026? If you have anything in the plan, I'd like to hear more about that. And some other banks have mentioned their [ BaaS ] initiatives. So do you have any initiatives which are gaining visibility internally? And if so, how would it be differentiated versus other players?

Yes. Let me take your first question. So for 2025, our fee and platform revenue or earnings actually increased by 3% Y-o-Y. This was despite a decline in the debit card earnings from lowering of the merchant fee rate. This was driven by very high Y-o-Y growth from advertising revenue and also from our loan comparison service as well, which grew by 54% and 37%, respectively. In 2026, we intend to continue to grow our advertising business. We are targeting above 30% growth, and we will continue to be expanding our loan comparison service as well. And we are looking to launch new products as well, including a new payment and settlement product, also new joint loan products as well. And we will be strengthening our investment-related services through our investment tab, including fund investment. So overall, our annual fee and platform income or our target growth would be 20% plus Y-o-Y. And moving on to your second question, so BaaS-related products are currently being discussed within the financial sector. However, they are associated with high funding costs. And also, it's not clear -- the growth trajectory is not clear from financial institution, the genuine client base. So rather than BaaS-driven deposits, a more important priority for us would be AI-based deposit products, including our signature products like the group accounts. And so we will be expanding these types of -- we will be expanding additional services that leverage these types of signature products going forward, and this will be one of our main priorities. So for BaaS, rather than using it as a driver for deposit growth, and of course, we've seen 24% deposit growth as per the latest number; we want to apply more -- BaaS more towards the investment context. For example, the joint loans that were begun in December, loan comparison services that will be scaled to include secured loans as well and mostly around loans or investment.

The following question will be presented by Hye-jin Park from Daishin Securities.

Yes. I also have two questions. I think, from some point onward, your overall asset soundness indicators actually have been tracking quite stably. What is the outlook of KakaoBank in terms of credit quality in terms of delinquency or credit cost? Most of the other banks, I think, have a largely positive view. So I'd like to know what KakaoBank is thinking. And CET1, although still high, has appeared to have gone down a little bit. So could you explain why?

Yes. Let me take your first question. So first, in terms of CIR, we expect that in 2026, it will largely be similar to 2025 levels at 0.55% or slightly better. So the reason for this view is that policy-backed loans, like Sunshine loans for self-employed business owners that will be increasing. Also, there may be additional provision required, given prevailing uncertainties, both in and outside of Korea. However, these challenging factors will largely be offset as we increase the share of secured or guaranteed backed loans, including SOHO secured loans or Sunshine loans. And on balance, this will help improve our credit cost. Moving on to the second question, so in the fourth quarter, our BIS ratio stands at 23.15%, down 0.70 percentage points Q-on-Q. The main reason behind this decline is the reduction in our equity upon the termination of end-of-period dividend of 461. So again, as we resolved upon 461 in the ending dividend -- end-of-year dividend, our shareholder equity would be reduced by 219.2 billion, leading to a 75 basis point reduction in our BIS ratio.

With that, we will now conclude the fourth quarter 2025 earnings call for KakaoBank. I'd like to thank all of our analysts, investors and media for taking your time to join us today. Thank you very much.