Regulator to consider adjusting banks' loan-to-deposit ratio to curb household lending

By Yonhap
  • Published : Aug 31, 2017 - 14:23
  • Updated : Aug 31, 2017 - 14:23
South Korea's financial regulator said Thursday it will consider adjusting banks' loan-to-deposit ratio requirement to help slow the growth of household lending.

The idea was one of the topics being discussed at a meeting of government officials earlier in the day to revamp regulations on capital markets. The meeting was led by Kim Yong-beom, vice chairman of the Financial Services Commission.

In a statement, the FSC said it "will review the feasibility of changing the weight of the household sector in calculating banks' loan-to-deposit ratio." 

Kim Yong-beom, vice chairman of the Financial Services Commission. (Yonhap)

If the weight of household lending is raised in calculating a bank's loan-to-deposit ratio, it will serve as a ceiling for the bank's household loans.

South Korean banks are prohibited from lending about 100 percent of their deposits.

Banks have asked the government to scrap the loan-to-deposit ratio requirement, calling the regulation excessive.

However, the government may strengthen the regulation to help divert capital into "productive areas," the FSC said.

FSC Chairman Choi Jong-ku said Wednesday that the level of household debt is hampering the nation's economic growth because it causes money to pour into "unproductive areas." 

Household debt stood at 1,388.3 trillion won ($1.23 trillion) at the end of June, up 10.4 percent from a year earlier, according to the Bank of Korea.

Although there is little risk that household debt may spark a financial crisis, rising debt chokes off private consumption and makes it difficult for the central bank to raise its key rate amid a global monetary tightening. (Yonhap)