South Korean banks will be temporarily exempted in their obligation to keep liquidity and loan coverage thresholds below 100 percent at a time they are under pressure to sustain households and companies in their fight against immediate liquidity woes from virus fallout.

According to sources on Monday, financial authorities are currently in discussion to temporarily lower loan-to-deposit ratio (LDR) and liquidity coverage ratio (LCR) requirements at banks as well as exempting lenders of disclosing related information. The Financial Services Commissions is expected to finalize the decision soon.

The LDR is a ratio between a bank’s total loan and its total deposit for the same period. LCR regulation requires banks to pile up high-quality liquid assets enough to cover cash outflows of 30 days. Both serve as key indicators for a bank’s financial soundness.

The financial authority regulates new loans by banks if their LDR goes beyond 100 percent. The LCR requirement is set also set at 100 percent, but banks are allowed lowering the level to below 100 under special circumstances like economic crisis acknowledged by the authorities.

Local banks have maintained their levels fairly until the coronavirus outbreak began spreading widely. Their financial soundness faces a downside risk as borrowings from consumers and businesses in need of cash for survival has grown sharply.

The outstanding balance of deposit held by the country’s four major banks – Shinhan, KB Kookmin, Hana, and Woori – grew 0.77 percent to 1,264.4 trillion won ($1,025.6 billion) at the end of March from three months ago. The outstanding balance of loans extended by the four lenders, however, rose 2.8 percent to 955.2 trillion won over the same period.

The government on March 26 decided to lower the foreign exchange liquidity coverage ratio for banks to 70 percent by the end of May from the current 80 percent to increase dollar supplies in the market.

By Choi Seung-jin, Chung Joo-won, and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]