Do not go gentle into that good night, old age should burn and rave at close of day; Rage, rage against the dying of the light, though wise men at their end know dark is right, because their words had forked no lightning they, do not go gentle into that good night.
Toss Insight warns of mixed risks, deposit slowdown for banks
Toss Insight's report titled "Banking Industry Outlook and Response Strategies in an Era of Uncertainty" / Courtesy of Toss Insight
By Jhoo Dong-chan
Toss Insight, the financial management research institute under Viva Republica, released a comprehensive industry outlook report Friday highlighting the mixed structural vulnerabilities facing Korean commercial and digital banks amid growing macroeconomic uncertainties.
The report, titled "The Era of Uncertainty: Banking Industry Outlook and Response Strategies," establishes three distinct economic paths — baseline, optimistic and pessimistic — spanning the second half of 2026 through 2027 to gauge bank profitability, asset quality and growth indicators. Rather than offering flat projections, the institute used probability distributions to map out potential "tail risks" — extreme scenarios where financial metrics could deteriorate significantly.
The analysis underscores a double-edged sword across all projected paths.
While high-interest rates and economic expansion boost net interest margins and loan growth, they simultaneously increase debtor repayment burdens, driving up loan delinquency and nonperforming asset rates.
Conversely, a low-rate, cooling economy eases borrower distress, but directly erodes interest-earning capacities and credit growth foundations. Toss Insight recommended that financial institutions abandon single-forecast reliance and dynamically recalibrate their capital and loan-loss provisions based on scenario sensitivity.
This structural trade-off is particularly pronounced for Korea's digital-first internet banks. Due to their high portfolio concentrations of mid-to-low credit tier consumers and unsecured personal credit loans, digital lenders see sharper interest income surges than traditional banks during rate hikes.
However, this gain is offset by a steep rise in consumer loan defaults, compounding credit risk management difficulties. Furthermore, stringent regulatory limits and a retail-heavy business model mean these platforms struggle to rapidly scale up loan volumes, even under favorable economic expansions.
The study also quantified the direct impact of equity market performance on bank liquidity. Toss Insight found that a 1 percentage point increase in the benchmark KOSPI over a single month triggers a noticeable decelerating effect on fixed-term deposit inflows over the subsequent three months. Based on industry balances tracked in February, this correlation translates to an estimated shortfall of 600 billion won to 930 billion won ($397 million to $615 million) in missed savings account growth. Highly liquid demand deposits showed negligible sensitivity to stock market movements.
The data indicates that stock market rallies do not cause sudden, panicky deposit flight. Instead, the friction materializes gradually as customers choose not to roll over maturing fixed deposits or divert new capital away from savings accounts.
"As uncertainty intensifies, a bank's success hinges less on how quickly it grows, and more on which risks it selectively absorbs and its systemic capacity to endure them," the Toss Insight research team noted, advising banks to segment flight-risk capital from sticky long-term deposits rather than trying to lock down all funding under identical terms.
This article was published with the assistance of generative AI and edited by The Korea Times.