Additional Easing of Loan-to-Deposit Ratio Regulations... Credit Extension Limits for Financial Holding Subsidiaries Also Relaxed

[Asia Economy Reporter Song Hwajeong] The government has decided to further ease the bank loan-to-deposit ratio regulations to stabilize the financial market, and to temporarily lift restrictions on insurance companies' retirement pension borrowing and credit limits between financial holding subsidiaries until the end of March next year.

According to the Financial Services Commission on the 28th, at the emergency macroeconomic financial meeting held that morning, it was decided to implement these market stabilization measures to promptly stabilize the short-term financial market.

First, to secure banks' loan-to-deposit ratio capacity, 11 types of loans funded by government funds, such as loans from the Small Business Market Promotion Fund and the Tourism Promotion Development Fund, will be excluded from the loan amount when calculating the loan-to-deposit ratio. The Financial Services Commission expects that excluding these loans will enable the supply of approximately 8 to 9 trillion won in new funds. Kwon Daeyoung, standing commissioner of the Financial Services Commission, explained, "Recently, as the loan-to-deposit ratio increased, the financial sector requested that both deposits and loans from government funds be excluded, and we judged this to be reasonable, so we decided to exclude 11 types of government policy fund loans. Excluding these is expected to reduce the loan-to-deposit ratio by 0.6%."

To support liquidity among financial holding subsidiaries, the credit provision limit will also be temporarily eased until the end of March next year. The credit provision limit from one subsidiary to another will be relaxed from the current 10% to 20%, and the total credit provision limit will be eased from 20% to 30%, each by 10 percentage points.

To address the issue of retirement pension fund outflows, the borrowing limit for retirement pensions will also be temporarily eased. Although a 10% limit currently applies, it will not be enforced until the end of March next year.

With the allowance of securities companies' self-guaranteed securitized bond purchases, the net capital ratio (NCR) risk value will be clarified at a reasonable level considering credit rating, default status, holding period, and other factors.

To ease the funding conditions for specialized credit finance companies, the won liquidity ratio will be relaxed by 10 percentage points until the end of March next year, and the project financing (PF) exposure ratio relative to credit assets will also be eased.

These temporary regulatory easing measures will be implemented until the end of March next year, after which the extension will be decided based on domestic and international conditions. Commissioner Kwon said, "The easing period was set until the end of March next year considering the year-end effects and the situation of fund allocation at the beginning of the year. If conditions improve by the end of the first quarter next year, the easing measures will be restored to their original state; otherwise, the extension will be decided."

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, along with heads of financial authorities, are taking a commemorative photo on the 28th at the Bankers' Hall in Jung-gu, Seoul, before the Emergency Macroeconomic and Financial Meeting. From the left: Choi Sang-mok, Senior Secretary for Economic Affairs; Lee Chang-yong, Governor of the Bank of Korea; Deputy Prime Minister Choo; Kim Joo-hyun, Chairman of the Financial Services Commission; Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by Kim Hyun-min kimhyun81@