Investing.com - South Korea has announced plans to require its banks to maintain higher levels of liquid assets, marking a cautious move away from relaxed capital requirements implemented during the pandemic and subsequent credit crunch. The country's Financial Services Commission (FSC) revealed that starting in July, banks' liquidity coverage ratio (LCR) regulations will begin to normalize.
The LCR ratio, which currently stands at 92.5%, is set to increase incrementally to 95% between July and December this year. The FSC also stated that the final LCR ratio for 2024 will be determined by the end of 2021. Additionally, eased regulations on loan-to-deposit ratios are scheduled for normalization beginning next month.
This shift away from relaxed liquidity coverage rules indicates growing confidence among authorities regarding South Korea's financial stability following pandemic-related challenges and a recent developer default-triggered liquidity crisis. However, regulators plan to continue their broader market stabilization program as a safeguard against potential future uncertainties.
Following substantial government support last year in response to a severe market disruption caused by a missed debt payment from a theme park developer, South Korea's bond market has experienced increased stability. Benchmark three-month commercial paper yields have reached their lowest point since October last year, while the won remains the best-performing Asian currency against the US dollar this quarter.
According to an FSC statement, more than KRW35 trillion ($27 billion) is available through its separate market stabilization program – including a bond support fund – ensuring ample capacity for continued assistance if necessary.