Financial Authorities Extend Bank LCR Relaxation and Loan-to-Deposit Ratio Application Deferral by Additional 6 Months

Supporting Financial Sector's COVID-19 Recovery Through Financial Regulation Flexibility

[Asia Economy Reporter Park Sun-mi] Following the financial authorities' plan to ease financial regulations to support the financial sector amid COVID-19, the deadline for the relaxation of banks' foreign currency and consolidated Liquidity Coverage Ratio (LCR) has been extended by six months until the end of September. The temporary exemption period for the banks' loan-to-deposit ratio (LDR), originally scheduled to end in June, has also been extended until the end of the year.

On the 9th, the Financial Services Commission and the Financial Supervisory Service announced at a regular meeting that they decided to extend the deadlines for measures such as the extension of maturity and repayment deferrals across the financial sector to maintain the financial sector's active role in supporting the real economy, including the easing of banks' LCR and the temporary exemption of LDR application for banks, savings banks, and mutual finance companies.

The deadline for the relaxation of banks' foreign currency and consolidated LCR has been extended by six months from the end of March to the end of September this year. As a result, until the end of September, the foreign currency LCR will be lowered from 80% to 70%, and the consolidated LCR from 100% to 85%. The temporary exemption period for the banks' LDR application has also been extended from the end of June to the end of the year. Until the end of the year, violations of the LDR within 5 percentage points will be exempt from sanctions, effectively raising the LDR limit to 105%. Additionally, the deadline for adjusting the risk weight on loans to individual business owners has been extended from the end of June to the end of September, allowing the 6-month extension of the 'risk weight reduction on individual business owner loans from 100% to 85%'.

The temporary relaxation period for credit extension limits between subsidiaries has also been extended from the end of June to the end of September. Under current law, the credit extension limit between subsidiaries of a holding company is restricted to 10% of their own capital, but until the end of September, the credit extension limit from one subsidiary to another will be expanded from 10% to 20% of own capital, and the total credit extension between subsidiaries will be increased from 20% to 30% of own capital.

Furthermore, the temporary exemption periods for the liquidity ratio of savings banks and credit finance companies, the LDR of savings banks and mutual finance companies, and the mandatory loan ratio within the business area of savings banks have all been extended by six months from the end of June to the end of the year.

The Financial Services Commission stated that it plans to establish a policy judgment system for the gradual normalization of COVID-19 response measures in the future, regularly providing market participants with situation assessments and directions for response. Specific timing and methods for normalization will be decided comprehensively considering quarantine conditions, real economy circumstances, and the soundness of financial companies, and will be normalized step-by-step and gradually to provide stakeholders with sufficient adaptation periods.

Meanwhile, corporate loans in the banking sector increased by 114 trillion won last year, exceeding 2.3 times the annual increase of 48.8 trillion won in 2019. The Financial Services Commission and the Financial Supervisory Service evaluated that "the financial sector's capacity to support the real economy and the expansion of funding to companies were strengthened as a result of preparing and implementing financial regulatory easing measures twice last year in April and August to respond to COVID-19."

This content was produced with the assistance of AI translation services.