BOK decides to delay moves to implement Basel III

Financial authorities have decided to delay implementation of some Basel III accord provisions to give more flexibility to banks coping with the coronavirus outbreak and its impact on lending.

The Basel III accord is an international set of measures released in 2009 after the global financial meltdown to strengthen standards and risk management in banking to prevent crises. It was supposed to be implemented by the financial industry in 2022.

The Bank of Korea (BOK) said Monday it would postpone some of the accord’s implementation by one year from January 2022 to January 2023 to help domestic banks. This followed a unanimous decision by the Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee, on March 27 to defer the revised accord’s implementation to provide additional flexibility to financial institutions around the world affected by the virus. BOK Gov. Lee Ju-yeol participated in the March 27 email vote, the bank said.

The Basel III accord includes capital and liquidity requirements that are stricter than previous norms and designed to help banks avoid liquidity and credit crises.

“The postponement of Basel III will ease any burden on domestic banks to keep up with regulations for the time being so that they can fully fortify their financial support [to companies] in response to the Covid-19 crisis,” the BOK said in a release.

Meanwhile, the Financial Services Commission (FSC) said Sunday it would accelerate Basel III regulations related to capital requirements for banks making loans to small- and medium-sized enterprises (SMEs). Currently, lending to SMEs can be expensive for banks. As small businesses can lack credit histories or have poor credit ratings, banks must set aside reserves for those loans, and some banks are reluctant to do so. The Basel III accord reduces the risk weighting, or the amount of reserves needed to be set aside, from 100 percent to 85 percent.

The country’s top financial regulator said it would accelerate the implementation of that part of Basel III from January 2023 to the end of June at the earliest.

“Its implementation should elevate the BIS requirement for banks, resulting in the expansion of capital offered to businesses, especially cash-starved SMEs and small business owners,” the FSC said.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]