FSC Eases LDR Requirements for Loans to Regional Companies and Individual Business Owners

Regulatory Notice Issued for Amendments to the "Regulations on Supervision of Banking Business"
"Boosting Funding Supply... Lending Capacity to Increase by 21 Trillion Won"

The Financial Services Commission has announced a regulatory notice for the amendment of the "Regulations on Supervision of Banking Business," which will ease the loan-to-deposit ratio (LDR) requirements for loans to companies and individual business owners located outside the Seoul metropolitan area.

The loan-to-deposit ratio refers to the ratio of loans made by a bank compared to the deposits it receives. The Financial Services Commission regulates the LDR to limit the amount of loans to a certain percentage of deposits. Currently, when calculating the LDR, banks apply risk weights of 85% for corporate loans, 100% for individual business loans, and 115% for household loans. The proposed amendment seeks to lower these weights by 5 percentage points for loans to companies and individual business owners located outside the Seoul metropolitan area (Seoul, Incheon, and Gyeonggi), resulting in weights of 80% for corporate loans and 95% for individual business loans, respectively.

As of last year, the total amount of loans made by domestic banks outside the metropolitan area was approximately 633 trillion won. Assuming the current LDR is maintained, it is estimated that banks’ lending capacity to companies and individual business owners in non-metropolitan areas could increase by up to about 21 trillion won (14.1 trillion won for corporate loans and 7 trillion won for individual business loans).

This is part of the "Regional Preferential Finance Promotion Plan" designed to expand "5 Major Regions and 3 Special Zones Regional Specialized Funding" by simultaneously increasing both policy finance and private sector funding. In terms of policy finance, a new "Regional Finance Supply Expansion Target System" will be introduced, aiming to raise the share of funding supplied to non-metropolitan areas from about 40% last year to at least 45% by 2028, an increase of more than 5 percentage points. The Financial Services Commission explained that, as a result, the annual amount of funding supplied to non-metropolitan areas is expected to increase by 25 trillion won to reach 120 trillion won by 2028. The "National Growth Fund" also plans to invest about 40% of its total capital in non-metropolitan areas to support advanced strategic industries, which are considered future growth engines.

The private financial sector also plans to boost funding to non-metropolitan areas by enhancing the competitiveness of regional banks, strengthening the identity of savings banks and mutual finance institutions as local and community financial institutions, and pursuing various measures such as improving related regulations and incentives. The easing of the LDR requirements is intended to activate bank lending to non-metropolitan areas by improving regulations and incentives.

The amendment will be open for regulatory notice from January 22 to February 11, after which it will go through procedures such as resolution by the Financial Services Commission and is expected to be implemented within the first quarter of this year.