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Numbers vs stories: Valuing banks in the new economy era
The new economy era requires digital banks to take some conventional strategies in customer development, and conventional banks to look at developing their digital ecosystems.
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Currency traders walk past an electronic display showing the Korea Composite Stock Price Index (KOSPI) on March 13, 2020 in the trading room of a bank in Seoul. (Reuters/-)
T
his year, market participants all over the world witnessed a fascinating phenomenon in the South Korean banking sector. Kakao Bank, the first purely digital bank with assets that reached US$25 billion in as little as four years, conducted a successful IPO in early August. Kakao Bank's capitalization value now sits at $28 billion to overtake KB Financial Group Inc., a conventional financial group with a capitalization value of $19 billion.
The same phenomenon was also found on the Indonesia Stock Exchange (IDX). Imagine, amid the IDX’s stagnant growth of almost 0 percent in 2021, several issuers instead saw their share prices skyrocket from two- to three-figure percentages in just a few short months. These issuers were generally tech companies and conventional BUKU II banks that went digital.
A prime example is Bank Jago (ARTO). The bank’s share price shot up 400 percent during the January-July period, with a market capitalization of Rp 248.7 trillion ($17 billion) that ranked it fifth in the IDX Top 10, ahead of prominent companies such as Astra International and Unilever.
Not only that, Bank Jago almost overtook Bank Mandiri, one of the largest banks in Indonesia with a market capitalization of Rp 266 trillion, assets worth Rp 1580.5 trillion and equity of Rp 189.1 trillion. Compare these remarkable numbers to Bank Jago’s total assets and total equity of respectively Rp 10.1 trillion and Rp 8.1 trillion. What is amazing is that even with these much smaller numbers, Bank Jago’s valuation is almost equal to that of Bank Mandiri’s.
As a former banker myself, I see this as an exciting, “miraculous” phenomenon in the so-called new economy era.
The arrival of a new economy within a specific era is usually marked by a massive tech boom that revolutionizes and disrupts previous economic activities.
Today’s new economy is driven primarily by rapid advancements in information and communications technology (ICT), more commonly known as digital technology. Technology is changing the way we work, think and go about our day in almost all areas of life, including banking. Without our realizing it, we are moving from offline activities to all things online.
