ID :
191726
Wed, 06/29/2011 - 09:55
Auther :
Shortlink :
https://oananews.org//node/191726
The shortlink copeid
Financial watchdog to tighten rules on bank lending
SEOUL, June 29 (Yonhap) -- South Korea's top financial regulator said Wednesday it plans to tighten banks' loan-to-deposit ratios and push to mend their lending practices as part of its efforts to curb excessive growth of household debt.
South Korea is grappling to control household debt as heavy indebtedness is feared to crimp economic growth by putting restraints on consumer spending. As of end-March, the country's household credit, including loans and credit purchasing, reached 801.4 trillion won (US$743.9 billion).
The Financial Services Commission (FSC) said the comprehensive package of measures are designed to engineer a soft landing of the country's household debt problem. South Korea's household debt accounted for around 86 percent of its gross domestic product in 2009, higher than the OECD average of 77 percent.
Under the measures, scheduled to go into effect as early as July, the FSC plans to push banks to lower their loan-to-deposit ratios to 100 percent by June 2012, from the original deadline of end-2013. The financial regulator may also consider further lowering the minimum requirement of the ratio, which currently stands at 100 percent.
The loan-to-deposit ratio, a gauge of a bank's solvency, measures the percentage of a bank's loans against the amount of its deposits. A higher reading means that the bank extended more loans than it could raise funds.
Korean banks' loan-to-deposit ratio once hovered above 100 percent, which was blamed as their major vulnerability to a liquidity squeeze at the height of the global financial turmoil. As of end-March, the country's 13 consumer lenders saw their average loan-to-deposit ratio reach 97.1 percent.
The financial regulator is set to step up supervision on financial institutions' lending practices and increase their risk management capacity.
The FSC said it plans to hike the risk-weighted value of BIS ratios on high-risk mortgage loans and increase inspection on individual debtors' debt repayment ability.
The move comes as households' capacity to service debt is deteriorating. Korean households' capacity to service debt worsened in the first quarter as debt increased faster than income growth and rising interest rates are feared to further hurt households' ability to repay debt.
Meanwhile, the FSC said it plans to induce local financial firms into extending home loans with fixed lending rates as part of its drive to mend banks' lending practices.
As the bulk of banks' mortgage loans is extended with floating lending rates, households are more exposed to risks if interest rates are on the rise.
South Korea plans to encourage more households to mend the practice of only repaying interest on their mortgage loans without paying out principal for an extended period of time, according to the FSC.
The FSC also said it plans to increase government-led consumer financing services on worries the tightened lending requirements may dent household economy.
mil@yna.co.kr
South Korea is grappling to control household debt as heavy indebtedness is feared to crimp economic growth by putting restraints on consumer spending. As of end-March, the country's household credit, including loans and credit purchasing, reached 801.4 trillion won (US$743.9 billion).
The Financial Services Commission (FSC) said the comprehensive package of measures are designed to engineer a soft landing of the country's household debt problem. South Korea's household debt accounted for around 86 percent of its gross domestic product in 2009, higher than the OECD average of 77 percent.
Under the measures, scheduled to go into effect as early as July, the FSC plans to push banks to lower their loan-to-deposit ratios to 100 percent by June 2012, from the original deadline of end-2013. The financial regulator may also consider further lowering the minimum requirement of the ratio, which currently stands at 100 percent.
The loan-to-deposit ratio, a gauge of a bank's solvency, measures the percentage of a bank's loans against the amount of its deposits. A higher reading means that the bank extended more loans than it could raise funds.
Korean banks' loan-to-deposit ratio once hovered above 100 percent, which was blamed as their major vulnerability to a liquidity squeeze at the height of the global financial turmoil. As of end-March, the country's 13 consumer lenders saw their average loan-to-deposit ratio reach 97.1 percent.
The financial regulator is set to step up supervision on financial institutions' lending practices and increase their risk management capacity.
The FSC said it plans to hike the risk-weighted value of BIS ratios on high-risk mortgage loans and increase inspection on individual debtors' debt repayment ability.
The move comes as households' capacity to service debt is deteriorating. Korean households' capacity to service debt worsened in the first quarter as debt increased faster than income growth and rising interest rates are feared to further hurt households' ability to repay debt.
Meanwhile, the FSC said it plans to induce local financial firms into extending home loans with fixed lending rates as part of its drive to mend banks' lending practices.
As the bulk of banks' mortgage loans is extended with floating lending rates, households are more exposed to risks if interest rates are on the rise.
South Korea plans to encourage more households to mend the practice of only repaying interest on their mortgage loans without paying out principal for an extended period of time, according to the FSC.
The FSC also said it plans to increase government-led consumer financing services on worries the tightened lending requirements may dent household economy.
mil@yna.co.kr
