Seoul implements early adoption of new Basel III rule on banks at end-June

2020.06.29 15:15:24

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The Basel III standards, new international rules for governing banks` capital requirement, will be applied to South Korean lenders, starting with JB Financial Group, Kwangju Bank and Jeonbuk Bank at the end of this month.

The Financial Services Commission and the Financial Supervisory Service announced Friday they have okayed the application for early implementation of the revised Basel III framework submitted by 15 out of all 19 commercial banks and eight financial holding companies.

Basel III is an international regulatory accord developed in the wake of the 2007-2008 financial crisis to bolster resilience of the global financial system by strengthening bank capital requirements. The new rules related to credit risk evaluation are designed to lower risk sensitivity on loans to small- and mid-sized businesses and improve the comparability of banks’ capital ratios.

Under the revision, risk sensitivity on SME loans is lowered to 85 percent from earlier 100 percent, with loss given default (LGD) on collateral-free business loans from 45 percent to 40 percent, and LGD on real estate mortgage loans from 35 percent to 20 percent.

The BIS adequacy of banks also is expected to improve by an average 1.91 percentage points, and financial holding firms by 1.11 percentage points on reduced capital requirements, the authorities said.

Other lenders like Standard Chartered Bank, Citibank, and internet-only Kakao Bank and K-Bank will implement the revised rules by January next year.

Early implementation of the revised rules will help banks bump up their loan capacity for companies and small businesses struggling due to liquidity woes amid the COVID-19 pandemic, said the financial authorities.

By Lee Ha-yeon

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