Bank Loan-to-Deposit Ratio Grace Period Ends in Late June... Integrated LCR Gradually Returns to Normal

[Asia Economy Reporter Song Hwajeong] Financial regulations that were eased in response to COVID-19 will be gradually normalized after June.

According to the Financial Services Commission on the 3rd, a common three-month grace period will be granted for seven measures whose relaxation period ends at the end of March, considering extensions of maturity and repayment deferrals. Among these, regulations expected to cause market shocks will be normalized step-by-step, while other regulations that do not pose compliance difficulties for the financial sector will be normalized immediately after the three-month grace period.

The grace period for the bank loan-to-deposit ratio (LDR) application, which exempts penalties if the LDR exceeds the usual standard of 100% by within 5 percentage points, will end in June, extended by three months from the original end of March. The grace periods for liquidity ratio application and LDR application for savings banks and specialized credit finance companies will also end at the end of June. The grace period for the mandatory loan ratio application within the savings banks' business area will also end at the end of June, three months later.

Regarding the integrated bank Liquidity Coverage Ratio (LCR), since immediate normalization could cause shocks to the banking sector and bond markets, a three-month grace period until June will be granted, followed by a quarterly stepwise increase in the regulatory ratio. The LCR is the ratio of high-quality liquid assets to the expected net cash outflows over the next 30 days. Lowering the LCR increases lending capacity. In response to COVID-19, the integrated bank LCR was eased from 100% to 85%, and the foreign currency LCR from 80% to 70%. The integrated bank LCR regulatory ratio will remain at 85% until June, then increase by 5 percentage points to 90% from July to September, 92.5% from October to the end of the year, 95% in the first quarter of next year, 97.5% in the second quarter, and will return to 100% from July onward. The measure lowering the foreign currency LCR regulatory ratio from 80% to 70% will end at the end of June, three months later.