Korea's financial watchdog said Friday it is drawing up stiffer regulations on banks' loan to deposit ratio and plans to announce the results as early as the end of this year.
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 they could raise funds.
"Currently, the watchdog is considering imposing stiffer rules on the loan-deposit ratio. Details have not been fixed yet, but the watchdog is seeking to announce the final results before the end of this year," Kwon Hyouk-se, vice chairman of the Financial Services Commission (FSC), said in a conference call with foreign media.
Korean banks, saddled with high short-term debt, suffered from a severe liquidity squeeze last year as they were hit by the U.S.-sparked global financial crisis. Local banks' loan ratio once hovered above 100 percent last year, which was blamed as a major risks to their liquidity during the financial turmoil.
Kwon said the strengthening of the regulation would not incur additional costs for banks and the move will prompt local banks to beef up their management of liquidity. As a set of possible regulations on bank liquidity are discussed from the stage of the Group of 20 industrialized and emerging market economies, the FSC is watching how the international discussion unfolds, it added.
As of the end of June, local banks' loan to deposit ratio stood at 114.1 percent. If certificates of deposits are factored, the ratio reached 98.9 percent as of the end of June.