Bank capital rules to be relaxed

The financial regulator will ease regulations on capital requirements for banks.

Yim Jong-yong, chairman of Financial Services Commission (FSC), outlined a set of deregulation measures Friday during a regular meeting with major banks.

Up until now, the regulator didn’t count reserves banks held against bad debt as a part of their capital.

Bad debt refers to receivables the company does not expect to actually collect.

When bad debt reserves are recognized as capital, the banks will have a higher common capital ratio, a measurement of a bank’s core equity capital compared with its total risk-weighted assets.

“[The measure] will leave banks with a reduced burden in terms of capital requirements and eliminate factors dragging down profits,” the chairman said.

“The change will help increase competitiveness and the appeal to investors [of bank shares],” the chairman said.

The FSC expected the measure, due to go into effect by the end of this year, to lead to higher common capital ratios for banks.

The move will benefit Woori Bank the most, followed by Shinhan and Korea Development Bank.

The FSC also scrapped the early notice system in selected cases.

Korea’s banking act requires banks to report in advance if they are launching new financial services unrelated to the traditional banking business.

The new measure will skip the reporting procedure if the service is approved in other financial laws. The regulator also simplified the process of banks trying to enter global markets.

Presently, the banks are required to report beforehand if they start businesses in countries with relatively low credit ratings. For business in developed countries such as the United States or European nations, advance notice is not required.

Under the new measure, banks will be exempt from early reporting - regardless of which country they enter - if the investment is less than 1 percent of their capital.

Since Korea’s banks are focusing on emerging countries in Southeast Asia, they have called for a simpler registration process for overseas operations.

Yim called on leading banks to expand their businesses and diversify their current revenue structures.

“The business environment is evolving,” Yim said, “Banks need to diversify their revenue streams and increase efficiency.”

The chairman emphasized the need to foster a performance-oriented culture.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]