Rules on Capital Adequacy, Liquidity to Be Eased
The South Korean government is planning to increase money supply from the financial sector to up to 389 trillion won by deregulation.
The deregulation for more money supply to the real economy includes less strict capital adequacy regulations for banks, insurers and securities companies participating in the stock market stabilization fund. Specifically, the risk weight applied to banks’ investment in the fund will be lowered from 300 percent to 100 percent and those applied to insurers and securities companies will be adjusted from 8 to 12 percent to 6 percent and from 9 to 12 percent to 4.5 to 6 percent, respectively.
Liquidity regulations applied to those institutions will be relaxed, too. For example, banks’ foreign currency liquidity coverage ratio (LCR) and overall LCR requirements will be temporarily lowered from 80 percent to 70 percent and from 100 percent to 85 percent, respectively. Banks’ loan-deposit ratio violation of 5 percentage points or less will be subject to no disadvantage until the end of June next year along with savings banks’ and mutual finance companies’ loan-deposit ratio violation of 10 percentage points or less.
In the bank sector, the new credit risk calculation method pertaining to final Basel III will be applied from the BIS ratio calculation scheduled for the end of June this year and small regional banks do not have to carry out additional capitalization. The large exposure limit to be applied to banks will not be implemented until 2021.
When it comes to Korea Development Bank, which is providing a large financial support, a violation of 10 percentage points or less in net stable funding ratio will be condoned until the end of June next year. As for insurers, RP issuance will be allowed for the purpose of investment in the bond and stock market stabilization funds. Credit card companies’ leverage limit will be extended from 600 percent to 800 percent and their weighted values for household and business loans will be adjusted to 115 percent and 85 percent, respectively.
The net capital ratio regulations applied to securities companies will be relaxed until the end of September. Business loans that comprehensive financial investment business entities newly handle until that date will be subject to a credit risk value adjusted from 0 to 32 percent to 0 to 16 percent. The credit offering limit between subsidiaries of the same holding company will be increased from 10 percent to 20 percent of equity capital and the total credit offering limit for another subsidiary will be increased from 20 percent to 30 percent of equity capital.