Kakao Bank’s value has jumped to nearly 8.6 trillion won ($7.6 billion) after a fundraising that included U.S. private equity firm TPG Capital, giving the digital bank a similar status to South Korea’s large financial services holding companies. 

TPG Capital has agreed to purchase 750 billion won worth of new shares in Kakao Bank, a unit of Kakao Group, valuing it at a whopping 8.58 trillion won, thebell said in a report on Tuesday (October 27). The valuation surprised industry watchers.

Market capitalizations of four financial majors – KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group – ranged from 17 trillion won to 6.5 trillion won after market close on Thursday (October 29). However, sources said it is difficult to make simple comparisons between Kakao Bank and large traditional banks.

Kakao Bank’s total assets amounted to 18 trillion won at the end of 2019, much smaller than those of the four financial services conglomerates’ banking units, which ranged from 327 trillion to 365 trillion won at the same point.

Founded only three years ago, the online bank has been growing more rapidly than larger banks, with its net income of 45.2 billion won for the first six months of this year already surpassing its 13.7 billion won net income in the whole of 2019.

However, Kakao Bank offers banking services exclusively online, which means it can maintain lower overheads than traditional banks. Analysts expect that Kakao Bank’s cost-to-income ratio, a key financial measure used to gauge the efficiency of a bank, will decline as low as 30% in the long term, compared with the industry average of between 40% and 50%.

Potential synergies with Kakao Group’s other affiliates, such as the entertainment unit Kakao M and mobility unit Kakano Mobility, are also likely to have had a positive impact on the valuation of the bank, industry watchers said.

“Kakao Bank’s investors appear to have viewed the bank more like an online tech company than a conventional banking institution when valuing it,” an industry insider said. “Given the valuation of some 8.6 trillion won, investors seem to expect Kakao Bank to catch up to middle-tier banks in terms of margins in the coming eight to 10 years.” (Reporting by Hee-yeon Han)