Following a series of cyberattacks earlier this month targeting the South Korean financial sector, the country's five largest banks experienced a significant decline in demand deposits. Data show that from the end of last month through June 6, the combined balance of demand deposits at KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup banks fell by nearly 16 trillion won (approximately $12 billion) over just three business days.
According to reports from the banks, demand deposit balances, including money market deposit accounts, decreased from 675.5 trillion won at the end of May to 659.6 trillion won as of June 6. This contraction marks the third-largest monthly decline in demand deposits this year, following decreases of 22.4 trillion won in January and 56.4 trillion won in July. During the same period, fixed deposits at the five banks also showed a downward trend, falling by roughly 4.4 trillion won from 1,006.9 trillion won to 1,001.7 trillion won, representing the second-largest drop since March.
Industry insiders caution against attributing the recent outflow solely to the cyber incidents, noting that fluctuations in early-month deposit balances are common due to payroll transfers, corporate fund movements, and investments shifting toward stocks, real estate, or high-interest financial products. A banking official commented that while it remains difficult to definitively interpret the fund flows, the speed of recent movements merits close monitoring.
The timing of the deposit decline coincides with confirmed cyberattacks on South Korean banks, which have raised concerns about the security of customer funds. In late May and early June, Shinan Bank revealed a leak involving personal data of approximately 25,000 customers, while KB Kookmin Bank reported exposure of information for 119 clients. These breaches at two of the nation’s largest lenders have heightened consumer unease about the safety of their savings, especially amid increasing reliance on mobile and online banking platforms.
South Korea’s shift toward digital banking has accelerated rapidly in recent years. Monthly active users of mobile banking applications for the five major banks grew from about 40.5 million at the end of 2023 to 45.8 million by June 2024. This digital transformation could potentially accelerate the pace of large-scale fund withdrawals should a confidence crisis arise, mirroring events such as the U.S. Silicon Valley Bank collapse in March 2023, where rapid asset sales and investor concerns triggered a massive, expedited run-off of $42 billion in deposits within a single day.
Adding to the challenges, the number of physical bank branches in South Korea has declined significantly, falling by roughly 800 locations from 6,332 in mid-2021 to 5,529 in June 2024. This trend, particularly pronounced in areas affected by population decline, reduces customers’ access to in-person support when facing financial or cybersecurity issues, potentially exacerbating anxiety.
The banking industry is now reassessing risk management priorities amid the evolving cybersecurity landscape. Traditionally focused on credit risk, capital adequacy, and liquidity, financial institutions must increasingly consider the impact of sophisticated AI-enabled cyberattacks on customer trust and operational resilience. A senior executive at a financial holding company emphasized that even in the absence of direct financial losses, breaches of trust stemming from cyber incidents could impose substantial burdens on banks’ reputations and stability.