An analysis found that activating won-denominated stablecoins will lead to a decline in revenue for domestic banks and shrink credit supply. The outlook is that bank deposits will move to stablecoin issuers, dealing a blow to their revenue structure.
Lee Dae-gi, a senior research fellow at the Korea Institute of Finance, stated accordingly in a report on the 10th titled "The impact of stablecoin activation on the banking industry and implications."
A stablecoin is a digital asset that minimizes value fluctuations based on safe assets such as legal tender. Unlike existing cryptocurrencies, it can be used as a practical means of payment.
The research fellow said that the activation of stablecoins could affect banks' core functions across deposits taking, credit creation, and payment intermediation. The fellow projected that if bank deposits move to issuers' reserves as stablecoins spread, liquidity and lending funds will shrink, and as some payment functions are replaced, fee revenue will also decline.
In particular, the research fellow noted that, due to structural characteristics, Korea's banking industry could be more exposed to such changes. The won loan-to-deposit ratio at domestic commercial banks is around 100%–110%, far exceeding the global average of about 80%. A loan-to-deposit ratio above 100% means it is difficult to meet loan demand with deposits alone, so banks rely on wholesale funding such as bank bonds. The analysis found that if stablecoins spread and deposits flow out, it could lead to loan contraction or higher funding expense.
Internet-only banks could also be affected. As the low-cost funding structure centered on demand deposits wavers, it could weigh on profitability.
However, the research fellow said that trust and customer relationship capabilities that banks have built up over a long period are difficult for stablecoin issuers to establish in a short time. The fellow saw potential to use this to create new revenue sources.
The research fellow emphasized, "For large commercial banks, an active strategy to lead the stablecoin ecosystem through consortium-led or self-issuance will be effective," adding, "It is time for the banking industry to participate proactively in regulatory discussions to secure medium- to long-term competitiveness."