The South Korean banking sector is engaged in a fierce competition to attract deposits, spurred by a booming stock market and a “money move” phenomenon where investors shift funds from banks to securities. This has led to a surge in deposit rates, particularly among internet-only banks, as they strive to retain customers and secure funding for lending. The escalating competition isn’t just about offering higher returns; it’s a strategic battle for platform dominance and securing a foothold in the lucrative modest business lending market.
The Kospi index surpassing the 6,000 mark – a historic milestone – has undeniably fueled this shift in investor behavior. As the stock market rallies, traditional savings accounts grow less appealing, prompting a flow of capital towards investment opportunities. Banks are responding by increasing deposit rates, with the five major commercial banks – KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup – raising rates by 0.05 to 0.1 percentage points, reaching a high of 2.8 to 2.9% annually. However, it’s the internet banks – KakaoBank, K Bank, and Toss Bank – that are leading the charge, offering rates exceeding 3% to entice customers.
The Deposit Rate War: A Battle for Customer Loyalty
The primary driver behind this aggressive rate hike is customer retention. Even as traditional banks are less vulnerable to the “money move” due to their diversified customer base, internet banks, heavily reliant on individual customers, are facing a significant risk of deposit outflows. Offering competitive interest rates is a direct attempt to counteract this trend. As of February 28, 2026, deposit rates across the banking sector hover around 2.9% annually. KB Kookmin Bank’s ‘KB Star Regular Deposit,’ Shinhan Bank’s ‘MyPlus Regular Deposit,’ NH NongHyup Bank’s ‘NH All One e-Deposit,’ and Woori Bank’s ‘WON Plus Deposit’ all offer a maximum rate of 2.9%. Hana Bank’s ‘Hana Regular Deposit’ stands at 2.85%. This competitive landscape is a direct response to the surging Kospi.
Internet banks are taking a more assertive approach. KakaoBank’s ‘KakaoBank Regular Deposit’ currently offers 3%, while K Bank’s ‘Code K Regular Deposit’ provides 3.01%, both representing increases of 0.05 percentage points. This willingness to absorb higher funding costs underscores the importance of maintaining a robust “platform environment” – keeping customers engaged within their apps and utilizing their full suite of financial services. Unlike traditional banks that rely on a diverse range of financial products to attract and retain customers, internet banks, lacking physical branches, prioritize maximizing app usage as a key competitive advantage.
The Power of the Platform: Locking in Customers
The strategy revolves around creating a seamless and convenient user experience that discourages customers from seeking alternative financial services elsewhere. Toss, a popular financial platform in South Korea, recently reported that connecting its app directly to loan applications from other financial institutions increased loan conversion rates by an average of 48% compared to traditional methods. In some cases, particularly with smaller savings banks, this conversion rate soared as high as 347%. This demonstrates the value of a unified platform where customers can access a wide range of financial products without leaving the app.
This convenience isn’t merely about facilitating transactions; it’s about data acquisition. By connecting customers to other financial services, internet banks gain valuable insights into their borrowing habits, and creditworthiness. This data can then be leveraged to offer tailored loan products and further solidify customer loyalty. The high-interest rates, serve as a “hook” to attract customers and lock them into the platform, creating a virtuous cycle of increased engagement, data collection, and revenue generation through both intermediary fees and expanded lending opportunities.
Shifting Focus to Small Business Lending
Beyond retaining existing customers, internet banks are actively targeting small business owners as a new growth engine. Regulatory measures aimed at curbing household debt, particularly mortgage loans, have effectively stalled growth in that sector. This has prompted internet banks to pivot towards personal business loans as a viable alternative. Toss Bank recently launched a promotional event offering up to 50,000 won (approximately $37 USD as of February 28, 2026) to new small business customers who open accounts with the bank. This isn’t simply about acquiring new customers; it’s about securing “transaction accounts” where business revenue is deposited, effectively tying business funds to the platform.
K Bank has also expanded its offerings for small business owners, broadening the scope of its ‘Business Owner Real Estate Collateral Loan’ to include second-tier financial institutions and increasing the maximum loan amount to 300 million won (approximately $224,000 USD as of February 28, 2026). This expansion necessitates maintaining a healthy loan-to-deposit ratio, requiring internet banks to proactively secure deposits to support their lending activities. The increased deposit rates and marketing efforts are therefore directly linked to this strategic imperative.
According to a financial sector source quoted in Seoul Economic TV, “For internet banks, small business loans are an unavoidable choice in the current environment.” The source further emphasized that aggressive lending requires a sufficient reserve of funds to meet regulatory requirements, necessitating increased deposit rates and targeted marketing campaigns.
KB Financial Group’s Position
KB Financial Group, the parent company of KB Kookmin Bank, remains a leading player in the South Korean financial landscape. Established in 2008, KB Financial Group operates as a holding company with key subsidiaries including KB Kookmin Bank, KB Kookmin Card, and KB Life Insurance. The group’s success is attributed to strengthening the core competencies of its subsidiaries and solidifying its position as a leading financial group. Further information on KB Financial Group’s investor relations can be found on their official website.
The current environment presents both challenges and opportunities for South Korean banks. The booming stock market and the resulting “money move” are forcing institutions to adapt and innovate to retain customers and secure funding. The competition is likely to intensify as banks continue to vie for market share, and the ultimate winners will be those that can successfully leverage technology, data, and customer-centric strategies to navigate this evolving landscape. The focus on small business lending is expected to continue as banks seek new avenues for growth in a constrained regulatory environment.
Looking ahead, the Bank of Korea’s monetary policy will play a crucial role in shaping the banking sector’s trajectory. Any future adjustments to interest rates will undoubtedly influence deposit rates and lending activity. The next policy meeting is scheduled for March 8, 2026, and market participants will be closely watching for any signals regarding the central bank’s stance on inflation and economic growth.
What are your thoughts on the current state of the South Korean banking sector? Share your comments below and let us know how these changes might affect you.