Bank KB Bukopin, the Indonesian subsidiary of Korean lender KB Kookmin Bank, has continued its loss-making run in the first half of the year, with its losses reaching over 1.49 trillion rupiah ($98.1 million) as of the end of May, according to data Wednesday.

It also showed a notable surge from the loss of 26.82 billion rupiah recorded in the first quarter, indicating a dramatic increase in losses over just the two-month period.

The incurred loss holds significance for KB Kookmin Bank, as Indonesia is its top promising market that it aims to further expand into.

The Indonesian bank has been experiencing a continuous upward trend in its accumulated net losses, which rose from 43.4 billion won in 2020 to 272.5 billion won in 2021, and further escalated to a significant 802.1 billion won last year.

KB's Indonesian unit is also a crucial factor in the neck-and-neck competition for the top financial group position in Korea.

Last year, Shinhan Financial Group's net profit marked 4.64 trillion won ($3.68 billion), surpassing its crosstown rival KB Financial Group’s net profit by more than 200 billion won.

One of the primary reasons for KB losing its top position was the need to cover bad debt provision for its money-losing subsidiary, Bank KB Bukopin, in Indonesia.

KB reclaimed the top bank position in Korea with a net profit of 1.85 trillion won during the first half, surpassing three rivals.

The Korean lender dismissed the concerns that KB may lose the No. 1 position because of the Indonesian unit as it will not allocate additional funds for bad debt provision.

“Last year, in order to address bad loans, additional reserves of around 500 billion won were set aside. This amount will be sufficient to absorb all the bad loans in the future. Bank KB Bukopin aims to turn around by 2025,” a KB Kookmin Bank official said.

The official also added that this year, the bank plans to focus on expanding its customer base through growth in high-quality assets, improving work processes, strengthening employee capabilities, and increasing cost efficiency.

Industry sources also raised concerns about the sustainability of Kookmin Bank's continuous capital injection into its unit in Indonesia.

The Korean bank injected 113 billion won when first acquiring a stake in Bank KB Bukopin in 2018 and another 296.6 billion won in 2020, followed by 393.5 billion won in 2021.

This year, an additional 709 billion won was invested in May, bringing the total investment to 1.51 trillion won so far.

Kookmin Bank secured a 22 percent stake in its first investment in 2018, since raising its stake to 67 percent.

“The fact that firms like STIC Investments, Eugene Private Equity and Meritz Securities also invested about 288 billion won with us by participating in our recent paid-in capital increase shows that they also expect a positive improvement of Bank KB Bukopin," the KB Kookmin Bank official said.

However, KB also stressed there will not be further paid-in capital increases.

“Last year's capital injection basically was our last capital increase,” KB Financial Group Chief Financial Officer Seo Young-ho said during its earnings conference call for the first half of this year.

The lender clarified that the CFO’s announcement does not imply the bank will abandon its Indonesia unit, and underscored its resolve to become profitable according to plan in 2025.

Bank Bukopin was founded in 1970 and has since operated 412 retail branches across Indonesia, mainly targeting consumers and small enterprises. KB Kookmin vowed to bring its risk management and digital banking capabilities as a majority shareholder when acquiring the Indonesian bank in 2018.