Last year we reported that Korean digital bank KBank was heavily dependent on deposits from Korea’s dominant crypto exchange, Upbit. At that stage reports stated that 70% of its deposits were from Upbit. In contrast, the latest report is that the Upbit client deposits amount to 5 trillion won ($3.6bn), representing just over 20% of KBank client balances. However, a new law requiring banks to pay interest on crypto exchange deposits could almost wipe out Kbank’s profits. The timing couldn’t be worse as the bank reportedly readies for a stock exchange listing.
Korean lawmakers passed the Virtual Asset User Protection Act last July, which comes into force on 19 July 2024. KBank acts as the main on- and off-ramp for Upbit and verifies that the client’s provided name is their real name.
What’s currently unclear is the specific interest rate Kbank will need to pay, but 1% is expected. All banks were requested to inform the regulator about the basis of their deposit rate calculations. Kbank already pays 0.1%. If the figure is 1%, KBank would need to spend around 50 billion won ($36 million) in interest, which is similar to KBank’s profit figure. A 1% interest rate is expected because that’s the current rate paid on investor deposits by domestic securities firms.
If the interest payment on crypto exchange deposits significantly impacts KBank’s profits, it could potentially devalue the bank in the context of an IPO.
Upbit is by far the dominant cryptocurrency exchange in Korea, and no other Korean bank has significant exposure to cryptocurrency exchange deposits.
Bank dependence on the crypto sector
Any bank’s heavy dependence on one sector is risky. In 2023, Silvergate Bank decided to shut down voluntarily after mass withdrawals by crypto firms following the crypto crash. It also had a high proportion of deposits linked to the sector. However, it planned to repay all depositors. Signature Bank, which had some exposure to the crypto sector, subsequently collapsed. Management disputed speculation that the Signature collapse was related to cryptocurrency.
