South Korea gives initial approval for first online-only banks

South Korea’s financial regulator has given preliminary approval to two consortia backed by Kakao Corp and an affiliate of China’s Alibaba Group Holding Ltd to set up the country’s first online-only banks.

Kakao, which runs South Korea’s most popular mobile chat service, is part of a consortium of 11 partners including units of Tencent Holdings Ltd and eBay Inc that won approval late on Sunday from the Financial Services Commission.

Another consortium of 21 partners, led by telecom company KT Corp with Alibaba’s Alipay Holding Ltd, also received approval to open an online bank.

Shares in KT were up 2.2 percent as of 0340 GMT (10.40 p.m. ET), while Kakao gained as much as 11 percent before paring gains on Monday.

The Kakao-backed consortium, in which Korea Investment & Securities, Kookmin Bank and Loen Entertainment are also partners, plans to invest an initial 300 billion won ($259.72 million) into the bank, with 400 billion won more to be invested in 2018, the regulator said.

The consortium plans to start operations as early as next year after final approvals expected in early 2016.

KT’s consortium, whose partners also include Woori Bank and Hyundai Securities, plan to invest an initial 250 billion won in the bank, the regulator said.

In a bid to spur growth in its banking sector, South Korea is allowing non financial firms to open banks but it still bars large industrial conglomerates such as Samsung Group and Hyundai Motor Group from taking part.

Reuters