Bloomberg News

Korea to Tighten Loan-Deposit Ratio Rules to Tame Household Debt

June 22, 2011

June 23 (Bloomberg) -- South Korea’s finance regulator plans to tighten rules related to banks’ loan-to-deposit ratios as the government seeks to rein in rising household debt in Asia’s fourth-largest economy.

The Financial Supervisory Service will more closely monitor lending at the country’s financial institutions’ and tighten control of the loan-deposit ratio, FSS Governor Kwon Hyouk Se told lawmakers today at a forum in Seoul, according to an e-mailed copy of his speech. The FSS didn’t disclose details on how the ratio will change.

South Korea’s household debt has risen eight straight quarters through March to a record 801.4 trillion won ($746 billion). The government is set to announce measures to control borrowing by the end of this month, the Financial Services Commission said last week.

“While there’s no immediate threat of deterioration of household loan quality, it’s highly likely that the household debt issue can be a burden in the future,” Kwon said.

The FSS, a privately funded agency that enforces polices set by a government regulator, aims to contain reckless household debt growth and will encourage lenders to change lending structures to help borrowers meet debt obligations if rates increases, it said today.

As of September 2010, the average ratio among 15 nationwide banks stood at 99.3 percent, the FSS said in November. The regulator in March 2010 advised domestic lenders to cut the ratio to 100 percent by the end of 2013 after the ratio rose as high as 127 percent following 2008 global financial crisis.

The loan-to-deposit ratio is used to assess a bank’s liquidity. A high ratio may indicate a lender may not have enough liquidity to cover unforeseen funding requirements.

--Editors: James Gunsalus, Brett Miller

To contact the reporter on this story: Seonjin Cha in Seoul at;

To contact the editor responsible for this story: Chitra Somayaji at

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