Challenges Facing Internet-Only Banks: The Toss Bank Case

Toss Bank struggles to achieve profitability amidst high delinquency rates and regulatory challenges in a competitive environment.

### The Unique Landscape of Internet-Only Banks
Internet-only banks, particularly in Korea, have a unique origin and operate differently from their U.S. counterparts. While U.S. online banks often have **offline branches and management experience**, Korean internet-only banks started as **IT startups** and face **significant government regulations**. Recently, Toss Bank in Korea faced rumors of a **bank run** due to heavy investments in securities and high delinquency rates, causing **concern among customers** and raising questions about the bank's **stability**.

### Toss Bank's Financial Situation and Comparison to Silicon Valley Bank
Toss Bank's financial statements from Q3 2022 show a **64% proportion of securities in total assets** and a **0.3% delinquency rate**, both significantly higher than the industry average. The bank's low-yield securities investment, coupled with rapid interest rate hikes, led to **accumulated valuation losses** and raised concerns about **potential liquidity issues**. However, Toss Bank's deposit structure and customer base differ from Silicon Valley Bank, and the decrease in deposits was due to **competition rather than a significant outflow**, making the comparison between the two banks less straightforward.

### The Impact of Social Media on Blinding's Financial Situation
Blinding's government bond status was perceived as **low-risk**, but social media rumors caused a stir. The company pre-released its first-quarter remittance products, showcasing **increased loan and deposit balances** to demonstrate liquidity. The Financial Supervisory Service intervened, downplaying the risk from bonds and short-term securities, while Toss Bank's controversial advance interest deposit product raised concerns about the bank's **stability**.

### Toss Bank's Struggle for Profitability
Toss Bank's bond valuation losses have **decreased significantly**, likely due to stabilizing market interest rates. The bank's challenge lies in achieving profitability, with a **low loan-to-deposit ratio** and a focus on **mid-interest loans for low to medium credit borrowers**. Toss Bank's transitional measures for Basel III standards and the need to **maintain a minimum BIS ratio** are limiting their ability to **increase loans and achieve a higher loan-to-deposit ratio**.

### Challenges in Bank Loan Growth and Capital Increase
Banks are struggling to achieve a **BIS ratio of 90-100%**, leading to a decline in loan growth rates. Toss Bank has conducted multiple capital increases, but its total capital growth has been **minimal** and its valuation is still lacking compared to Kakao Bank. Despite the potential to lend more, Toss Bank is facing ongoing deficits and a **downward trend in self-sufficiency**, while the fierce competition in the market makes it difficult to maintain a **long-term upward trend in interest income**.

### Toss Bank's Loan Strategy and Challenges
Toss Bank is promoting **no prepayment penalties** to attract loans, but this self-destructive competition raises concerns about the **stability of a customer base consistently paying high interest rates**. The bank's increasing ratio of mid-credit loans has led to a **rising delinquency rate**, which is expected to worsen as they plan to lend an additional **350 billion won to mid-level borrowers**. Additionally, Toss Bank needs to increase its BIS ratio from **8% to 10.5% by 2024**, requiring **capital expansion** to navigate the challenges of operating in Korea's banking sector.

### Challenges and Strategies in the Banking Sector
Kakao Bank and K Bank have struggled to meet their ambitious goals, with both falling short of their **target loan rates** by the end of 2021. Toss Bank's entry into the market was crucial, offering a **more competitive loan rate** and facing **higher standards for its banking license**. The internet banks are now caught in a vicious cycle of needing to **turn a profit** while struggling to **raise capital**, leading to a task force proposal for measures to **expand competition and improve loan mobility**.

### Expanding Loan Services and the Role of Internet Banks
The scope of loans is being expanded to include individual business owners, with a unique platform model involving **cooperative joint loans with local banks**. Internet banks are using IT infrastructure to streamline loan applications and evaluations, aiming to **increase their total loan volume**. However, the financial authorities are skeptical, and there is a need to **prove the consumer benefits of internet-only banks** to justify new incentives.

### The Challenges and Prospects of Toss Bank in the Korean Banking Landscape
* 🏦 The fundamental roles of lending and receiving define banks, with their failure to perform these tasks leading to **bankruptcy or closure** globally.
* 💻 Internet-only banks in Korea, unique in their origins as IT startups, face significant challenges in profitability, particularly in a macroeconomic environment of **rising interest rates**.
* 📊 Toss Bank, amidst rumors of a bank run, had a securities ratio of **64%** and a delinquency rate of around **0.3%**, significantly higher than traditional banks, raising concerns about their **financial stability**.
* 📉 Comparatively, Toss Bank's high ratio of **low-yield securities** and a loan-to-deposit ratio of only **30%** indicate difficulties in generating profit, as they struggle with a **liquidity crisis** and **increasing delinquency rates**.
* 🔍 Despite rumors, Toss Bank's deposit structure is robust, with **nearly 5 million customers** and deposits exceeding **23 trillion won**, unlike Silicon Valley Bank's client base, which was more **vulnerable**.
* 💰 The bank's recent financial disclosures indicate a loan balance of **9.3 trillion won** against deposits of **23.2 trillion won**, aiming for a loan-to-deposit ratio of **44%**, but facing challenges in **expanding loans due to regulatory constraints**.
* 📈 Toss Bank's strategy to enhance profitability includes **launching new products** and **raising the share of mid- to low-credit loans**, though this raises concerns about **increasing delinquency rates**.
* 🤔 Ultimately, Toss Bank's future hinges on **balancing profitability with regulatory requirements**, as they must navigate a competitive market while proving their **value to consumers**.

토스 뱅크는 뭐가 문제인가

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