South Korea will ask its banks to hold more liquid assets, starting a gradual exit from regulatory easing on capital requirements as local markets recover from the pandemic and a recent credit crunch.
(Bloomberg) — South Korea will ask its banks to hold more liquid assets, starting a gradual exit from regulatory easing on capital requirements as local markets recover from the pandemic and a recent credit crunch.
Authorities will begin normalizing rules for banks’ liquidity coverage ratio from July, the Financial Services Commission said in a statement Tuesday. The LCR ratio will be raised to 95% between July and December from 92.5% now, with the ratio for 2024 to be decided at the end of this year. Eased rules on the loan-to-deposit ratio will also normalize from next month.
The withdrawal of easing on the key liquidity coverage rules, introduced during the Covid era and extended after a developer’s default caused a liquidity crisis, shows authorities’ regained confidence in the country’s financial stability. In a sign of continued caution, regulators will maintain a broader market stabilization program to guard against future uncertainties.Â
Korea’s bond market has steadied after authorities pledged billions of dollars in support last year, when a theme park developer’s missed debt payment caused the worst market rout since the global financial crisis. Yields on benchmark three-month commercial paper have dropped to the lowest since October, while the won is Asia’s best-performing currency versus the dollar this quarter.
The separate market stabilization program, which includes a bond support fund, currently has sufficient support capacity of more than 35 trillion won ($27 billion), according to the FSC statement.Â
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