South Korea’s savings bank will become subject to a stricter rule to refrain from lending beyond its assets by facing the same maximum loan-to-deposit ratio of 100 percent as commercial banks from 2021.

According to Korea’s top financial authorities Financial Services Commission and Financial Supervisory Service on Tuesday, the loan-deposit ratio requirement for savings banks will be set at 110 percent next year and 100 percent from 2021. The new rule will be applicable to the savings banks that have outstanding loan balance of 100 billion won ($84 million) or more at the end of preceding fiscal year for each effective schedule.

The loan-deposit ratio compares a lender’s total loans to its total deposits for the same period. When the ratio is higher than 100 percent, the loan is larger than the value of the asset securing the loan.

The loan-deposit ratio for savings banks hovered around 80 percent in 2009-2010 then fell to as low as 75.2 percent in late 2012. It rose to 100.1 percent in late 2017.

The financial authorities said the loan-deposit ratio will be set at 130 percent for loans with annual interest rate of over 20 percent to prevent excessive growth in high-interest lending. Policy loans such as sunshine loans offered to low-income households will be excluded in calculating the loan-deposit ratio.

By Kim Gang-rae and Cho Jeehyun

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