KBank, a digital bank in Korea, has been significantly impacted by a new law mandating interest payments on deposits from cryptocurrency exchanges. Last year, it was reported that KBank relied heavily on deposits from Upbit, Korea’s leading crypto exchange, with Upbit accounting for 70% of its deposits. However, recent data indicates that Upbit client deposits now constitute just over 20% of KBank’s client balances, amounting to 5 trillion won ($3.6 billion).
The enactment of the Virtual Asset User Protection Act by Korean lawmakers in July 2023, slated to come into effect on July 19, 2024, requires banks to pay interest on deposits from crypto exchanges. KBank serves as the primary on- and off-ramp for Upbit and ensures that clients’ provided names match their real identities.
The exact interest rate KBank will be required to pay remains uncertain, but it is anticipated to be around 1%. All banks have been instructed to disclose the basis of their deposit rate calculations to regulators. KBank currently pays a 0.1% interest rate on deposits. If the mandated rate reaches 1%, KBank would need to allocate approximately 50 billion won ($36 million) in interest payments, similar to its profit figure. The expected 1% interest rate aligns with the rate currently paid on investor deposits by domestic securities firms.
The potential impact of the interest payment on crypto deposits could pose significant challenges for KBank, especially considering its preparations for a stock exchange listing. With Upbit dominating the Korean cryptocurrency exchange landscape and no other Korean bank having substantial exposure to crypto exchange deposits, KBank’s financial performance in the wake of the new law could affect its valuation in the context of an IPO.