South Korean Banks Will Not Compete with Crypto Exchanges in Deposit Interest Rates

South Korean banks are declining to join the nation’s cryptocurrency exchanges in a “deposit rate war” as these platforms compete for market share.

According to Daehan Keumyoong Shinmun, banks believe they have “no justification” to “engage actively” while leading crypto trading platforms strive to surpass one another in attracting more clients.

South Korean Banks ‘Unconcerned’ by Crypto Exchange Rivalry

As stipulated by the Virtual Asset User Protection Act, which took effect last month, crypto exchanges that facilitate crypto-fiat trading are required to keep and manage their customers’ deposits in separate bank accounts.

The legislation also mandates that exchanges pay interest to their clients if they maintain cash deposits. However, exchanges have the liberty to modify the interest rates they provide to their customers.

This has led platforms to attempt to attract more clients with increasingly competitive interest rates.

Nonetheless, the media outlet reported that South Korea’s leading banks “seem to be unconcerned” about the exchanges’ “deposit interest rate battles.”

An unnamed representative from a South Korean banking group stated:

“Even if other businesses compete to offer products similar to bank accounts, there are fundamental drawbacks, such as the fact that the Depositor Protection Act does not extend to them. In terms of brand recognition and trust in asset security, banks continue to hold a dominant position.”

Interest rates on acquisition financing in South Korea have fallen to pre-pandemic levels in the 5% range, paving the way for active M&A transactions in the country. #bank_loans #interest_rates #Hyosung_Chemical #DIG_Airgas #DN_Solutions #Ecorbit https://t.co/pkc2XwbPw8

— The Korea Economic Daily (@kedglobal) August 15, 2024

Another banker noted that the Cost of Funds Index, the standard lending rate for mortgage loans, has “recently been declining.”

This situation, the banker asserted, implies that it would be “challenging” for commercial banks to increase deposit interest rates in the near term.

Banks Eager to Collaborate with Crypto Exchanges

However, another official cautioned banks that as fintech “becomes more accessible, some “investors’ funds” are relocating to “environments with more favorable conditions.”

The same expert mentioned that banks “still maintain a strong position in long-term deposits.” However, the expert pointed out that “short-term investment funds that can be deposited and withdrawn at any time” might shift to “other sectors with significantly better interest rates and limits.”

In late July, exchanges participated in what some media outlets described as “an unprecedented late-night scramble” over interest rates in “a bid to outshine one another.”

South Korea’s early trade data indicated exports gaining traction this month, suggesting that global demand for semiconductors remains robust https://t.co/NZejLZKE5K

— Bloomberg Markets (@markets) August 21, 2024

The “scramble” led market leader Upbit to announce an annual interest rate of 1.3%. Just 90 minutes later, its main competitor Bithumb declared a 2% rate.

Upbit reacted in less than an hour by raising its own rate to 2.1%, prompting Bithumb to increase its rate to 2.2%.

Another participant in the “big four” fiat-trading crypto exchanges, Korbit, entered the “war” shortly thereafter, revealing a rate of 2.5%.

South Korean banks raise mortgage rates amid escalating household debt https://t.co/bj4VPTZK6B

— Jeongmin Kim (@jeongminnkim) August 20, 2024

The final member of the “big four,” Coinone, has this week sought to surpass all of its competitors.

Hanguk Kyungjae reported this week that the exchange is offering its clients an interest rate of 2.3%, in addition to waiving withdrawal fees until September 19.

Despite their purported indifference to competition in the crypto arena, exchange-related pressure is mounting on South Korean banks.

Trading volumes on the South Korean crypto exchange Bithumb over the past month. (Source: CoinGecko)

This month, reports have emerged suggesting that Kookmin (KB) Bank has persuaded Bithumb to terminate a long-standing partnership with rival NongHyup in favor of a KB agreement.

Experts indicate that KB aims to attract younger customers and believes that collaborating with Bithumb will assist in acquiring new clients aged 20-39.

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