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Newsletter | April 2015, Issue 1
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BANKING
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Amendment to Bank Supervision Regulation Enters Into Force
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An amendment to the Bank Supervision Regulation (“Amendment”) went into effect on December 26, 2014. Key points of the Amendment include adoption of a Liquidity Coverage Ratio (“LCR”) system and measures to implement the government’s plans for financial regulatory reform such as rationalization of standards for calculating loan-to-deposit ratios with regard to Korean Won (“KRW LTD”). The changes are summarized below.
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Adoption of LCR system
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LCR = highly liquid assets / net cash outflow for the following month (cash outflow – cash inflow)
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In view of local banks’ level of liquidity (101% as of September 2014), LCR has been set at 80% (for commercial banks) for the initial year of implementation – this rate is higher than the Basel III standard (60% in 2015, to increase by 10% every year to reach 100% in 2019). The LCR will be increased by 5% each year for the next 4 years to reach 100% in 2019.
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However, relaxed standards apply for specialized banks and local branches of foreign banks in light of the uniqueness of their governance structure and business model, as follows:
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Special banks: 60% initially → increased by 10% each year for next 4 years (100% from 2019 onwards)
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Local branches of foreign banks: 20% initially → increased by 10% each year for next 4 years (60% from 2019 onwards)
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Rationalization of Standards for Calculating KRW LTD
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Aid banks to make loans and increase autonomy in asset management by excluding policy fund loans (KRW 23.6 as of September 2014) when calculating KRW LTD
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Encourage issuance of covered bonds and support restructuring of household debt by including covered bonds with maturity of 5 years or more as deposit for purpose of calculating KRW LTD
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Other Measures for Implementation of Financial Regulatory Reform
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Scope of leasable business property: In view of fairness with other financial institutions, banks are now allowed to lease up to 9 times the space they directly occupy, for business purposes (previously, banks could only lease the space that they directly occupy)
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Deregulation on outsourcing of asset management: Banks may now outsource asset management regardless of type of fund involved
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Back to Main Page
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