Good morning. This is Dianna Kang from KakaoBank's IR team. I'd like to thank all of our analysts and investors for joining us today at our earnings conference. We will proceed with the presentation by management via simultaneous translation first, followed by Q&A with consecutive translation. We will now begin KakaoBank's earnings call for the second quarter of 2026. We are joined by members of management, including our CEO, Daniel Yun, Vice President Ruth Kim, our Chief Financial Officer, Tae Kwon.
Sean Kim, Head of the Banking Group, Paolo Lee, Johnny Ahn, Co-Heads of the AI Group, Conrad Shin, Chief Technology Officer, Buddy Song, Head of the New Business Group, and Ellie Lee, Chief Risk Officer. Today's earnings release is based on KIFRS and has been prepared prior to review by the external auditor for the purpose of providing timely information on the company's operating performance. Accordingly, the contents are subject to change depending on the findings from the auditor's review.
I will now hand it over to Mr. Tae Kwon, our Chief Financial Officer, to present our business highlights and financial results for the second quarter of 2026.
Good morning. This is Tae Kwon from KakaoBank. I'm the CFO. Let me take you through our key highlights for the first half of 2026 from page three onwards. In the first half, we continued to further solidify our core competitive strengths with our customer base increasing by 920,000 from the end of 2025, as we achieved meaningful improvements across all key operating metrics. Our interest income grew 21% year-on-year, while fee income grew 92% year-on-year, as we saw even solid growth momentum from our fee and platform business.
Driven by strong underlying fundamentals, we posted record high net profits, which rose by 24% year-on-year. Let me now take you through further details in the later slides. Page four, our customer base. As of the end of the second quarter, customers totaled 27.63 million, amid continued even penetration growth across all age groups. MAU and WAU also maintained solid momentum, thanks to new product launches, including various service offerings, including our investment hub and AI-enabled investment search functions.
Page five for operating revenue. Operating revenue rose 7% year-on-year to KRW 829 billion, driven by balanced growth in both interest income and fee and platform revenue. Interest revenue increased on the back of our loan portfolio and investment assets amid higher market interest rates. Meanwhile, fee and platform revenue made a significant contribution to overall top-line growth, with all major business segments delivering balanced growth, supported by higher debit card payment volume, the expansion of our advertising business, and robust loan sales.
Page six, onto our deposits. As of the end of Q2, our deposit balance increased by 5% Y-O-Y, but declined 3% Q-on-Q, reflecting the recent shift of funds into the capital market. While low-cost deposits decreased modestly, broadly in line with market trends, our funding cost edged down to 1.82%, driven by a decline in the funding cost of our low-cost deposits. Next, on to page seven for our group accounts. Despite the decline in total deposits, our signature group account balance continued to grow, supported by a solid user base.
Group owners, in particular, showed a 36% higher activation ratio versus general users, and loan interest income per user was nearly twice as high. As you can see, there was a significant contribution to both user engagement and profitability, largely due to the network effect centered around the group owner and multiple linked users. We expect group accounts to remain a key pillar driving deposit growth in the future. Page eight. At KakaoBank, we have been steadily expanding our deposit franchise beyond our initial base of retail Korean won deposits into the SOHO segment and institutional segments.
To date, our primary focus has been on the retail and SOHO markets, which together account for roughly half of Korea's total addressable deposit market of KRW 2,279 trillion. Looking ahead in the mid to long term, we plan to gradually expand into the remaining other half of the huge market, targeting the corporate and institutional deposit segment. As an initial step, we launched our foreign currency account this June, which allows users to hold up to nine foreign currencies with zero FX conversion fees, and also transfer foreign currency funds to linked brokerage accounts.
This product is helping us acquire new customers while also providing additional source of funding. Building on the success of our retail deposit franchise, we will proactively expand into new customer segments and markets going forward. Onto loans, page nine. In Q2, our loan balance increased 8% year-over-year and 1% Q-on-Q to KRW 48.2 trillion. While our housing deposit and mortgage loan balances declined amid tighter real estate market regulations, our SOHO and unsecured loan balances continued growth.
Our second quarter NIM increased by 13 basis points quarter-on-quarter to 2.13%, driven by higher asset yields and lower liability funding costs. With our deposit and loan portfolio structurally well-positioned to benefit from a rising interest rate environment, we expect to see structural improvements to our full year 2026 NIM versus last year. On to page 10. We have been strategically expanding our lending franchise beyond retail as well, first into the SOHO segment and ultimately the SME market going forward.
Even as we grow our SOHO loan balance, we have continued to increase our portfolio of guaranteed and secured loans, building a stable and resilient asset portfolio. Going forward, we will continue to broaden our loan coverage in line with our mid to long-term roadmap, with the goal of expanding into the SME corporate lending market. In July, our joint lending program with Busan Bank was designated an innovative financial service. We are now in advanced discussions on the launch of a jointly originated SME loan product.
Ultimately, we intend to leverage this initiative as a springboard for our direct expansion into the corporate lending space. On to page 11 for treasury management. In the second quarter, heightened capital market volatility resulted in an increase in our loan-to-deposit ratio. Despite a considerable decline in our treasury AUM, our treasury management income increased 12% quarter-on-quarter to KRW 169.8 billion, driven by higher interest income from bond investments amid rising market rates.
In the second half, we will closely monitor changing market conditions following the policy rate hike, which began in July, as well as developments in the capital markets. Through disciplined liquidity management and risk control, we will maintain a stable asset base and contribute to overall earnings despite the current volatile market environment. Pages 12- 15 outline our fee and platform business, and let me take you to page 12, our loan portfolio or loan platform business first. In the second quarter, loan execution volume through our Credit Loan Comparison service increased 12% year-on-year to KRW 1 trillion 559.7 billion.
Amid tightening regulations on household lending, we continue to strengthen the competitiveness of our platform by expanding our network of partners. We are planning to launch an auto financing product this September, which we expect to be a welcome enhancement to our product lineup. Page 13 for our payment business. In the second quarter, debit card transaction volume grew 5% year-on-year, driven in part by high oil price relief subsidies. We are preparing to launch Payment Home services in August, where users can manage all payment-related information, including transaction history and benefits in one place.
As we focus on creating an integrated payment ecosystem, we are also planning to launch our second PLCC product with Shinhan Card to expand our fee income stream and accumulate further business experience. Page 14, our advertising platform. In the second quarter, ad revenue rose 81% year-on-year, driven by continued traffic growth as well as increased premium ad placement volume from seasonal sectors, particularly securities and tax refund services.
Our ad platform business continued to demonstrate outstanding advertising effectiveness, serving as a stable revenue stream as we diversify our product mix and scale network advertising. We will continue to increase advertising inventory via the launch of new services such as our Investment Tab and Payment Home, which we expect will further support growth in our platform business. Page 15, onto our investment platform. Our investment platform and business, while we have been diversifying our product lineup, enhancing service offerings, resulting in steady earnings growth.
In particular, the launch of MMF Box services in June last year contributed to significant growth in fund balances and market share through improved customer convenience and product appeal. Since the launch of our integrated Investment Tab this April, MAU actually has tripled. We continue to rapidly broaden our user base by offering a seamless and connected investment experience. Next, on to page 17. Second quarter D&A increased 17% year-on-year due to higher IT and depreciation expenses as our data center operations entered full scale.
CIR on a cumulative basis for the first half was 34.2%. Finally, page 20. As disclosed in June, KakaoBank has signed an SPA to acquire a 100% stake in Mastern Capital as part of our strategy to expand into capital finance. We plan to expand our coverage across the KRW 249 trillion addressable market, spanning non-banking lending and corporate finance, including auto installment financing and leasing. Leveraging our competitive advantage in funding, we expect to create meaningful financial synergies. Over the longer term, we plan to gradually expand our portfolio into corporate investment banking.
As a first step, we are pursuing opportunities to acquire a stable portfolio of auto finance loan assets through a partnership with a used car platform. We will provide further update as we obtain regulatory approval for our acquisition of Mastern Capital and finalize the details of our auto financing partnership as well. This concludes our presentation on key business and financial highlights for the second quarter of 2026. We will now move on to Q&A. In the interest of time, please limit yourself to two questions per person. Thank you.
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Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant.
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The first question will be provided by Jun-Sup Jung from NH Investment & Securities. Please go ahead with your question.
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Yes, this is Jun-Sup Jung from NH Securities. I'd like to thank you for the opportunity to ask two questions. I also would like to thank you for delivering very good performance. First of all, it seems that in the second quarter, NIM growth actually was quite impressive. It seems that rather than interest cost, interest income or the rise in interest gain was the bigger factor. If you could elaborate on the backdrop to the improved NIM. Also, given the current macro conditions and also the policy rate hike cycle, what are your expectations in terms of this year and next year NIM?
I'd appreciate some guidance. Second question has to do with your proposed acquisition of the capital company. I do understand that you have not entered the process at full scale yet, but on the premise that you will be proceeding with the acquisition. If you want to expand the business, I would imagine that it would require more capital injection. What amount do you think is likely in terms of additional capitalization? Also, what is your long-term expectation in terms of expected return on the capital finance business? What is the impact to your CT1?
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Yes. Thank you very much for the question. In terms of our second quarter NIM, our asset to liability ratio itself is actually quite similar to the prior quarter levels. However, as a result of a 13 basis point rise in our net interest spread, we saw a 13 basis point increase Q-on-Q in our NIM as well.
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To provide further detail, amid rising market interest rates, we did focus our credit lending on unsecured loans. Also, our yield on investments, including investments in bonds and loans, saw a rise of 11 basis points quarter-over-quarter. Also, amid the cancellation of deposits amid an active stock market in Korea, our liability costs decreased by -2 basis points Q-on-Q. In terms of the profile of loan growth, there is a difference in terms of KakaoBank's growth versus other commercial banks.
Commercial banks' lending has mostly been centered around home mortgage loans or large corporate lending, whereas for KakaoBank, it was mostly SOHO loans and unsecured loans. In terms of the driver behind the lower liability cost, as we responded to the money move or shift towards the stock market, we did respond mostly by focusing on our short-term liquidity.
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The decrease in MMF assets, for example, which are now counted toward interest-bearing assets, also was a contributor that resulted in the NIM movement. In terms of our forecast for full-year NIM this year, on the assumption that the current policy rate remains in place, we did initially forecast similar levels to last year, if not a slight improvement. However, reflecting the rate hike effective in July, and also the possibility of one further rate hike within the year, we believe that NIM is likely to increase further in the second half.
On that basis, our full-year NIM guidance is increase of 10 basis points or more. Let me move on to your second question. Last June, KakaoBank, we entered into a share purchase agreement, an SPA, for the purchase of 100% equity interest in Mastern Capital. This is for the purpose of expanding into the non-bank lending markets, including installment financing, also leasing, as well as corporate lending.
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In terms of our acquisition of Mastern Capital, we are seeking approval from the FSC within this year. We are forecasting launch of new services within the first half of next year, in order to report profits within 2027 as well. In the mid to long term, we are targeting double-digit ROE by the year 2030. In terms of capital requirements, we do believe that two rounds of capital increases may be required at around KRW 100 billion range or so, as we believe we may need to increase the asset base to KRW 1 trillion or more before ramping up business on a more full-scale basis.
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At the initial stage of business, we intend to mostly focus on growing used car installment financing related assets based on our collaboration with a domestic automobile distribution platform. In the mid to longer term, we want to expand into investment finance and also corporate lending. The impact to our CT1 upon acquisition of the capital company, based on our current outlook, is about 2 - 3 basis points. However, this could be subject to further widening as we expand the business further. That said, we expect that the negative impact will be limited.
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Thank you. We will move on to the next question, please.
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The following question will be presented by Jae Woong Won from HSBC Securities. Please go ahead with your question.
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Yes, I would also like to thank you for the opportunity. My first question also has to do with second quarter NIM, where you did see a market improvement. It seems that as a digital bank, you may have slightly higher interest rate sensitivity versus other banks. Some other banks run their own simulations and have communicated their interest rate sensitivity. For example, if there is a 25 basis points rise in the policy rate, they will share what kind of impact it will have on their NIM. Usually something to the range, 2 basis points-3 basis points.
Have you also done that kind of analysis at KakaoBank? If so, if you could share, we'd appreciate it. Second, I'd like to know more about the mix of floating rate versus fixed rates lending. And within floating rate, could I also have more color on the composition? Is it mostly COFIX or financial debentures? Also the repricing cycle. If you could provide a breakdown one year or less, six months, three months, it would be very helpful in projecting future NIM.
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Yes, let me take your first question.
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In terms of our sensitivity to the policy rate, it could depend on the deposit interest rate, of course, but we're assuming that a 25 basis point rise in the policy rate is associated with a three basis point impact on NIM over the next one year.
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However, compared to other commercial banks, because of the fast pace of speed and also the rapid change of our portfolio, we are not able to calculate our interest rate sensitivity to the granular level as our commercial bank peers.
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In answer to your second question.
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In terms of our overall loan book, we do apply different standard rates.
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For high credit or mid credit loans, we apply three month or one year financial debenture interest rates.
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For housing deposit loans, two year financial debenture rates. For home mortgage loans, five year debenture rates.
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We apply new COFIX for housing loan and home mortgage new lending.
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On balance, in terms of the overall mix, fixed rates are about 27%, floating 73%.
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Next question.
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The following question will be presented by Sinyoung Park from Goldman Sachs. Please go ahead with your question.
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Yes. I would like to ask whether there were any changes to your deposit strategy overall. Unlike loan growth, of course, deposits are not subject to any caps in terms of growth. It seemed that until previously, your strategy was on building a stronger presence within the deposit market. Throughout last year, it seems that on a quarter-to-quarter basis, your deposit growth actually has been slowing down, and that has been demonstrated again this quarter. Perhaps it's due to the fact that you do not have a securities subsidiary within the group, but may be some impact from the money move towards the stock markets.
Given that these conditions remain unchanged, if there is a further move in capital, how do you intend to respond? Second question has to do with your value program. Previously, you disclosed an asset target of KRW 100 trillion by 2027. Does the current development, the money move in particular, mean that there may be adjustments to this target? Do you tend to be on track to achieve the goal, helped by your acquisition of Mastern Capital?
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Thank you for the question.
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Yes, let me address the first one.
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In the second quarter, it is true that there was some impact from the money move toward the equity market. On a Q on Q basis, deposits did decline by KRW 2.2 trillion. However, we saw an increase not only in the balance, but in the number of customers across other domains like our group accounts, My Child's Account, also our SOHO deposits, saw continued growth.
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Into July, the total balance has turned around to net growth, and we are overseeing restoration of growth momentum.
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In the second half, we expect to secure more deposit growth through the strength of not only our existing group accounts, My Child's Account, but additional products in the mix, including our Living Expense Account, future installment account for the youth, and also other policy-backed products. Also, in June, of course, we launched the foreign currency accounts, and we will be coming up with services for foreigners later in the fourth quarter as well.
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For this year, we are targeting double digits full year growth and deposits. Again, driven by the launch of various new products and services.
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We are going to start at full scale in 2027 to attract more corporate deposits and also expand into corporate finance as well as we expand our addressable market. On that basis, we expect to be able to achieve the KRW 100 trillion asset target in year 2027.
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Yes, we will move on to the next question, please.
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The following question will be presented by Jun-Sup Jung from NH Investment & Securities. Please go ahead with your question.
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Yes. Thank you for allowing me to ask another further question, this time on your expenses. It seems that SG&A actually has grown largely due to your investments in AI and from data center operations, I imagine. When do you expect these types of expenses to peak out? For this year and next, what are your expectations in terms of CIR? It would be very helpful in forecasting future performance.
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Yes. Thank you.
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In the second quarter, our SG&A did increase by 17% year-on-year, largely due to IT and depreciation expenses as we started to ramp up our data center operations.
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In particular, our Jukjeon AA Data Center has started full scale operations as of 2025. We started to report KRW 20 billion in quarterly depreciation expense starting from the second quarter of this year.
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For 2026, on a full year basis, we do expect that as far as D&A and the IT operating expenses are concerned, it may rise by 40% or more year-on-year. All other SG&A items, except those two, will be managed within a single-digit Y-O-Y growth. With the exception of labor one-off in 2025, we expect to be able to manage SG&A growth within or under 20% or so.
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For CIR this year, we do expect a slight increase year-on-year, but it should start trending downward on a more stable trajectory starting 2027.
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Yes. Thank you. We'll move on to the next question.
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Currently, there are no participants with questions. Please press star one, star and one to give your question.
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The following question will be presented by Sinyoung Park from Goldman Sachs. Please go ahead with your question.
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Since there are no other questions in the queue, I would like to ask another regarding your overall growth strategy. At the beginning of the year, you talked about 10% or so annual asset growth. It does seem that the pace of growth has weakened. Are you still forecasting a concentration of growth to come in the second half? If you could share more about your loan growth strategy, I'd appreciate it.
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Our second quarter lending growth was just 1% on a Q- on- Q basis. However, as of the full first half, we saw 3% year-on-year growth. This is above the lending growth seen across the broad banking sector.
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However, in the second half of the year, we expect a boost to our loan business. In September, we will be launching our balance-payment loan for new home purchases. Also in the fourth quarter, we will have refinance loans backed against real estate property for SOHO borrowers. Through the launch of these new products, we expect to match prior year lending growth levels.
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Similar to last year, we do expect a similar pattern where there is more steeper growth in the second half over the first half.
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Starting 2027, we will be scaling into the corporate lending market in earnest, starting with joint loans together with a regional bank.
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As there are no further questions, we will now conclude the second quarter 2026 earnings call for KakaoBank. I'd like to thank all of our analysts, journalists, and investors for joining us today. Thank you.