Financial Services Commission Eases Bank Loan-to-Deposit Ratio Regulations to Facilitate Corporate Fundraising

Excluding Financial Intermediary Support Loans Funded by Bank of Korea Borrowings in Loan-to-Deposit Ratio Calculation
Improved Financing Conditions Expected for SMEs and Others

[Asia Economy Reporter Sim Nayoung] The Financial Services Commission announced on the 27th that it will temporarily ease the loan-to-deposit ratio (the ratio of loan balance to deposit balance in banks) regulations for banks and savings banks.

In the current situation where corporate loan demand is increasing due to the contraction of the corporate bond market, the loan-to-deposit ratio regulation acts as a constraint in the process of banks and savings banks responding to corporate funding needs. This measure aims to facilitate smooth financing for the corporate sector.

The corporate loan balance in the banking sector increased by approximately KRW 111.8 trillion, from KRW 1,445.6 trillion at the end of last year to KRW 1,557.4 trillion in June this year.

The Financial Services Commission decided to relax the loan-to-deposit ratio regulation from 100% to 105% for banks and from 100% to 110% for savings banks. After easing the regulation for six months, it plans to review the necessity of extending the flexible measures based on market conditions.

The Financial Services Commission expects that the easing of the loan-to-deposit ratio regulation will create additional corporate loan capacity and reduce funding costs due to eased deposit competition, thereby partially alleviating upward pressure on loan interest rates.

Additionally, the Financial Services Commission announced that loans supported by the Bank of Korea borrowings for financial intermediation support will be excluded when calculating the bank loan-to-deposit ratio. Financial intermediation support loans refer to a system where the Bank of Korea provides low-interest funds to banks based on their small and medium enterprise loan performance.

The key point is to expand the bank’s loan-to-deposit ratio buffer by excluding the amount of financial intermediation support loans (within the Bank of Korea borrowing limit) from the loan items when calculating the bank loan-to-deposit ratio.

Currently, Bank of Korea borrowings are excluded from the deposit items when calculating the loan-to-deposit ratio, but the amount of financial intermediation support loans is included in the loan items. This measure addresses the issue where the loan-to-deposit ratio increases as more financial intermediation support loans are handled.

The Financial Services Commission stated, "By rationally adjusting the loan-to-deposit ratio calculation method, it is expected that the financing conditions for small and medium enterprises and others will improve."

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