Stablecoins Hit Bank Profit Structure…Deposit Outflow·Fee Revenue ↓

"Stablecoins Hit Bank Profit Structure…Deposit Outflow·Fee Revenue ↓"

Financial Research Institute Report… "High Loan-to-Deposit Ratio and Demand Deposit-Dependent Structure Make Banks Vulnerable to Shocks"

An analysis suggests that the growth of stablecoins could hit the profit structure of domestic banks.

It is pointed out that both commercial banks with high loan-to-deposit ratios and internet banks highly dependent on demand deposits could face a deterioration in profitability.

Lee Dae-gi, a senior research fellow at the Korea Institute of Finance, stated this in a report titled 'Impact and Implications of Stablecoin Activation on the Banking Industry' on the 10th.

Stablecoins are digital assets that minimize value fluctuations based on safe assets such as fiat currency, and unlike existing cryptocurrencies, they can be used as a practical means of payment.

The research fellow predicted that if bank deposits move to the issuer's reserves due to the spread of stablecoins, liquidity and loan resources would shrink, and some payment functions would be replaced, leading to a decrease in fee revenue.

He particularly pointed out that the Korean banking industry, due to its structural characteristics, could be more exposed to such changes.

Domestic commercial banks have a Korean won loan-to-deposit ratio of 100-110%, significantly exceeding the global average of about 80%.

As it is difficult to meet loan demand with deposits alone, there is a high reliance on wholesale funding such as bank bonds. The analysis suggests that if stablecoins spread and deposits outflow, it could lead to reduced lending or increased funding costs.

Internet banks could also be affected.

The low-cost funding structure centered on demand deposits could be shaken, potentially burdening profitability.

However, the research fellow noted that trust and customer relationship capabilities, which banks have built over a long period, are difficult for stablecoin issuers to acquire in a short time, and suggested that these could be leveraged to create new revenue streams.

Specifically, he recommended that large commercial banks consider participating in the ecosystem by issuing their own Korean won stablecoins or providing payment infrastructure.

Internet banks also stated that diversification of their funding structure is necessary along with the introduction of stablecoin services.

He also emphasized that while considering a plan to require a certain percentage of reserves to be deposited in banks, the system should be carefully designed, taking into account Korea's high loan-to-deposit ratio structure.

The research fellow also said that stablecoins should be used as a complementary means to central bank digital currency (CBDC) to enhance the efficiency of the digital currency ecosystem.

He further emphasized, "It is time for the banking industry to actively participate in regulatory discussions to secure mid- to long-term competitiveness."