[1mm Financial Talk] Phone Banking Run in Korea Too?…Toss Bank's Growing Pains

Toss Bank "Sufficient Liquidity... Just a Happening"

Office worker An Jae-woong (37), who lives in the Seoul metropolitan area, came across eye-opening news last weekend while resting at home and browsing a frequently visited online community. The news suggested that his favorite Toss Bank might be facing liquidity difficulties. Alarmed, An withdrew the entire 50 million won he had deposited in his parking account. It was only after seeing related news on Monday morning that he redeposited the money into Toss Bank.

An said, “Regardless of whether it was true or not, I felt uneasy, and since it took less than a minute to transfer, I thought I’d just withdraw it first and see what happens.” He added, “After reading the article about the incident on Monday morning, I redeposited the lump sum into Toss Bank, which also took about a minute. I thought rumors were scary.”

The internet-only bank Toss Bank went through a rough patch over the weekend due to rumors of a liquidity crisis. There was even concern that a phone banking run?where customers rapidly withdraw funds via mobile phones?might become a reality in Korea, similar to the U.S. Toss Bank’s CEO Hong Min-taek personally stepped in to quell fears, stating, “Toss Bank’s liquidity is very abundant.” The industry views this as a kind of “incident” triggered by the spread of public anxiety amid growing uncertainties in the global financial market.

At a panel discussion commemorating the 5th anniversary of internet-only banks held on the morning of the 27th at the National Assembly Members’ Office Building in Yeouido, Seoul, CEO Hong told reporters regarding the liquidity crisis rumors, “It was a kind of incident,” and added, “Toss Bank’s deposits amount to 23 trillion won, so liquidity is very abundant.”

CEO Hong’s intervention came after rumors about Toss Bank’s liquidity crisis surfaced over the past few days on online communities. The trigger was Toss Bank’s launch on the 24th of a prepaid interest deposit product called “Deposit with Interest Paid First.” This product offers an annual interest rate of 3.5% with a deposit limit ranging from 1 million won to 1 billion won. Customers choose a fixed deposit period (3 or 6 months) and receive interest upfront. For example, depositing 100 million won for 6 months would immediately yield about 1.76 million won in interest.

Although the niche marketing emphasized the ability to enjoy additional investment returns through prepaid interest, ironically, rumors spread online suggesting that the product was developed due to liquidity shortages, putting Toss Bank in an awkward position. Authorities explained that there were no liquidity issues and no sudden capital outflows over the weekend, but Toss Bank still had to have its CEO publicly “clarify” the situation.

Industry insiders cite the spread of anxiety following the Silicon Valley Bank (SVB) collapse, Credit Suisse (CS) liquidity crisis, and Deutsche Bank (DB) rumors as the main cause of this incident. A financial industry official said, “Domestic consumers are sensitive to bank soundness because they have witnessed actual bank and savings bank failures during the foreign exchange crisis and the global financial crisis,” adding, “The recent unstable overseas financial markets likely exacerbated this.”

While the situation differs somewhat, there were similarities to SVB. Just as rumors about SVB’s crisis rapidly spread through the social media platform Slack, widely used by startups, various rumors about Toss Bank began circulating on online communities such as Blind. The ability to make rapid deposits and withdrawals by the second via smartphone applications is another similarity.

Of course, it is commonly pointed out that Toss Bank’s financial condition is incomparably sounder than SVB’s. As of the previous day, Toss Bank’s loan and deposit balances were 9.3 trillion won and 23.2 trillion won, respectively. The loan-to-deposit ratio rose nearly fourfold from 12.4% last year to 44%. Additionally, the liquidity coverage ratio (LCR) stood at 833.5%, and the net stable funding ratio (NSFR) was 208%, which are about eight times and twice the average of commercial banks, respectively.

Although the bond ratio relative to total assets is 55.5%, which is a concern similar to SVB, the proportion of long-term bonds that troubled SVB is very low. The share of bonds with maturities over five years among Toss Bank’s total securities is only 0.36%. Most of the securities assets are concentrated in short-term bonds that are easy to liquidate and have low interest rate volatility, so the risk is considered low.

A Toss Bank official said, “The prepaid interest product is something that existing financial companies also offer, so it was introduced to diversify our product lineup,” adding, “There was no significant change in deposit balances over the weekend, and the prepaid interest deposit product actually attracted a considerable amount of deposits.”