"Expansion of Funding for COVID-19 Affected Companies"... Early Implementation of Basel III Final Rule by End of June

Eun Sung-soo, Chairman of the Financial Services Commission / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Kim Hyo-jin] The Financial Services Commission and the Financial Supervisory Service announced on the 29th that they will implement the final Basel III framework by the end of June, more than a year and a half ahead of the original schedule, to increase banks' funding supply to companies affected by the novel coronavirus infection (COVID-19).

The final Basel III framework includes provisions to lower the loss rates on unsecured corporate loans and real estate-secured loans in the event of default 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.

The risk weight for loans to small and medium-sized enterprises (SMEs) without credit ratings will be lowered from 100% to 85%. This will reduce the capital burden on banks when lending to SMEs and also have the effect of increasing the Basel Committee on Banking Supervision (BIS) ratio.

The financial authorities have been reviewing improvements to supervisory regulations in the banking sector through the existing Regulatory Reform Committee. The early adoption of the final Basel III framework was also discussed during this process.

A financial authority official explained the background of the early adoption of the final Basel III framework, saying, "It is to establish a foundation that allows banks to faithfully fulfill their roles in expanding funding supply to the real economy to overcome COVID-19 and participating in financial market stabilization programs."

The official also said, "By reforming domestic banking regulations to comply with international standards and improving banks' BIS ratios, it is expected to act as a favorable factor for banks' overseas funding and expansion."

The financial authorities estimate that this measure will increase the BIS ratios of regional banks in Daegu, Busan, Gwangju, and Gyeongnam, as well as major banks such as Shinhan and Kookmin, by more than 1 to 4 percentage points. The final Basel III framework will be implemented sequentially starting from the calculation of BIS ratios at the end of June for banks and bank holding companies that have completed preparations such as system establishment.

The operational risk regulatory reform under the final Basel III framework will be implemented as scheduled from January 2022, considering the time required for financial companies to prepare systems and other arrangements.