Seoul is looking to strengthen the ability of local banks to deal with sudden changes in the international market, financial authorities announced after a meeting Thursday.
As part of the plans finalized at a meeting among financial regulators, the central bank and the Finance Ministry, local banks will be required to raise their foreign exchange liquidity coverage ratio to 80 percent by 2019.
The FX LCR is maintained at a level between the net forex outflow expected over a 30 day period and high-liquidity foreign currency denominated assets at levels specified by the financial authorities.
Under the plans, commercial banks will be required to raise their FX LCR by 10 percentage points each year starting 2017 from 60 percent. Special banks such as the Industrial Bank of Korea will be required to raise their FX LCR by 20 percentage points each year from 40 percent in 2017 to meet the 80 percent requirement by 2019. Special banks refer to banks founded according to specific acts rather than the Banking Act.
Although the Korea Development Bank falls in the special bank category, its target ratio has been set at 60 percent.
Banks whose foreign currency debt account for less than 5 percent of overall debt, and those with less than $500 million in foreign currency debt are excluded from the measure. Local banks that have been exempted include Jeonbuk Bank, Jeju Bank and Kwangju Bank. The Export-Import Bank of Korea and local branches of foreign banks have also been exempted.