Financial Authorities Push for Early Adoption of 'Basel III' to Expand Funding for COVID-19 Affected Companies

[Asia Economy Reporter Kangwook Cho] Financial authorities are pushing for the early adoption of the Basel III final framework. This is to increase funding supply to companies affected by the spread of the novel coronavirus infection (COVID-19).

According to the financial sector on the 23rd, financial authorities are considering advancing the implementation timing of the Basel III final framework from the originally planned 2022 to this year. It is expected that adoption will be possible within 2 to 3 months after practical work is completed.

The Basel III final framework includes provisions to lower the loss rates upon default for unsecured corporate loans and real estate-secured loans from 45% to 40% and from 35% to 20%, respectively. As the loss rates decrease, banks will be able to take a more proactive approach to corporate lending.

Additionally, the risk weight for loans to small and medium-sized enterprises (SMEs) without credit ratings will be lowered from 100% to 85%. In this case, the capital burden on banks when lending to SMEs will be reduced, and it will also have the effect of increasing the Bank for International Settlements (BIS) ratio.

Financial authorities have already been reviewing improvements to supervisory regulations in the banking sector through the existing Regulatory Reform Committee. One of these is the early adoption of the Basel III final framework, which was scheduled to be implemented in 2022. The judgment is that early adoption will help expand productive finance. In particular, it is interpreted that the introduction is being expedited to provide financial support to companies affected by the recent COVID-19 crisis.

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