South Korean banks are steering clear of the escalating deposit rate competition among the nation’s crypto exchanges. According to Daehan Keumyoong Shinmun, banks perceive no need to engage in the “deposit rate war” that exchanges have ignited in their quest for market dominance. Under the recently enacted Virtual Asset User Protection Act, crypto exchanges must manage customer deposits in dedicated bank accounts and offer interest on cash deposits, leading to increasingly aggressive interest rate offers from these platforms.
Despite this, South Korea’s major banks remain indifferent to the competition. An unnamed banking official cited the inherent risks and lack of depositor protection associated with crypto deposits as reasons for their reluctance. They also highlighted the enduring trust and brand awareness that traditional banks hold over their crypto counterparts.
Additionally, the Cost of Funds Index, a key benchmark for mortgage lending, has been on a downward trend, complicating efforts for banks to increase deposit rates. While banks are aware of the shift in investor funds towards platforms offering better short-term returns, they continue to maintain a strong position in long-term deposits.
The competition among crypto exchanges has intensified, with notable spikes in interest rates. Upbit initially offered a rate of 1.3% in late July, quickly surpassed by Bithumb at 2%, and further raised by Korbit to 2.5%. Coinone has since entered the fray with a 2.3% rate and additional incentives like waived withdrawal fees.
Despite the pressure from crypto exchanges, banks remain steadfast, focusing on their core strengths in asset protection and long-term deposit stability.
August 2024, Cryptoniteuae
