Featured Product

    FSC Announces Temporary Measures to Ease Impact of COVID-19 Crisis

    FSC published a set of temporary measures on the capital adequacy, liquidity, and asset quality requirements of financial institutions, in an effort to ease impact of the COVID-19 crisis. The key measures include early adoption of Basel III credit risk framework, postponement of large exposures framework until after 2021, and no penalties or administrative sanctions for failing to meet the disclosure or business report deadlines. FSC and FSS issued guidance warning companies and auditors against a mechanical application of IFRS 9 standards for determining their expected credit losses (ECLs) during the COVID-19 crisis. Additionally, The Korean government has issued financial support measures aimed at helping the small and medium size enterprises (SMEs) and small merchants to better cope with the burden of economic slowdown amid the COVID-19 outbreak.

    Regulations on Capital Adequacy

    • Early Adoption of Basel III credit risk framework for banks—Basel III contains measures to lower credit risk weights for SME loans loans and loss given default (LGD) rates for business loans. The early adoption of the Basel III credit risk framework in late June this year, more than one year and a half before the Basel Committee recommendation will increase domestic banks’ average BIS ratio by 0.8 percentage point.
    • Designation of Domestic Systemically Important Banks (D-SIBs)—Basel III requires D-SIBs and their subsidiaries to maintain higher capital buffers of an additional 1 percentage point. FSC noted that, through revisions of rules and regulations in June, small regional banks will be excluded from the list of D-SIBs and exempt from the 1 percentage point additional capital buffer rule.
    • Net Capital Ratio for Securities Firms—The standards for calculating firms’ net capital ratio will be temporarily eased for newly issued business loans until the end of September, including extensions of existing loans. For loans to SMEs and startups of up to a certain amount, the lowering of risk-weights will be applied permanently.
    • Contribution to Stock Market Stabilization FundUnder the current regulations , banks investment in funds that have listed stocks as underlying assets should be assigned a 300% risk-weight in principle. However, banks will be allowed to assign a 100% risk-weight for the amount of contributions they make to the stock market stabilization fund.

    Regulations on Liquidity

    • Liquidity Coverage Ratio (LCR) for Banks—FSC will work to lower the foreign currency LCR from 80% to 70% by the end of September. Similarly, FSC will work to bring down the total LCR from 100% to 85% by the end of September to encourage banks to make use of high liquidity assets amid the COVID-19 crisis.
    • Loan-to-Deposit Ratio—Banks will be exempt from sanctions for violating the loan-to-deposit ratio requirement within a 5 percentage point range until the end of June 2021. Also, the risk-weight of commercial loans issued to self-employed small merchants in this year will be lowered from 100% to 85%.
    • Net Stable Funding Ratio—Korea Development Bank issues industrial finance bonds to raise funds for the COVID-19 emergency support package of government. Due to the relatively low risk-weight assigned to these bonds, net stable funding ratio of Korea Development Bank is expected to drop after the bond issuance. As such, there will be no penalties imposed on Korea Development Bank for violating the net stable funding ratio rule within a 10 percentage point range until the end of June 2021.
    • Liquidity Ratio Requirements for Credit Finance Companies and Savings Banks—Specialized credit finance companies and savings banks will not be sanctioned for violating the liquidity ratio rules within a 10 percentage point range until the end of June 2021.

    Guidance on Application of IFRS 9

    Both companies and auditors are highly advised to consider the unprecedented financial and economic relief measures taken by the government in a comprehensive way when determining ECLs. Ordinarily, the government’s market support measures are expected to lower the risk of a default on a financial instrument. With regard to the impairment of financial instruments, IFRS 9 “requires that lifetime ECLs be recognized when there is a significant increase in credit risk on a financial instrument.” IASB has issued a statement in this regard on March 27, recommending entities to adopt a more flexible approach when recognizing the impairment of financial instruments due to high levels of uncertainty amid the COVID-19 crisis.

    Asset Quality Standards

    Across all financial sectors, concerns have been raised over degradation of asset quality and accounting of accrued interest due to heavy volumes of loan extensions and deferment of payment extended to commercial entities. In this regard, all financial institutions can apply the existing asset quality standards without the need to raise additional capital reserves and consider accrued interest as interest revenue for accounting purposes.

    Other Measures

    • Incentives for State-Backed Financial Institutions—State-backed financial institutions have expanded the availability of funding to help businesses and individuals and to stabilize markets. By doing so, policy banks have risked unfavorable assessment results for their annual performance reviews, especially in terms of budget implementation and revenue management. In this regard, the financial authorities will take into account the special circumstances surrounding business operations amid the COVID-19 crisis and prioritize the performance of providing the COVID-19 emergency support package when carrying out performance reviews on policy banks this year.
    • Financial Support—The financial support programs targeted at the SMEs and small merchants include extensions on the existing loans and guarantees; new loans and special credit guarantees; and discounts on interest rates and fees, deferment of payments, and export-import financing. FSC and FSS, along with the Korea Federation of Banks and its member institutions, held a meeting on March 23, during which a memorandum of agreement was signed for close cooperation in the provision of the COVID-19 financial support programs. The key point of the agreement is that banks will work to ensure that the loan and guarantee extensions, along with the deferment of interest payments, are seamlessly implemented beginning on April 01.

     

    Related Links

    Keywords: Asia Pacific, Korea, Banking, COVID-19, LCR, NSFR, Basel III, Large Exposures, Credit Risk, Disclosure, IFRS 9, ECL, SME, Regulatory Capital, Liquidity Risk, FSS, FSC

    Featured Experts
    Related Articles
    News

    EBA Updates List of Validation Rules for Reporting by Banks

    EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.

    September 10, 2020 WebPage Regulatory News
    News

    EBA Responds to EC Call for Advice to Strengthen AML/CFT Framework

    EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).

    September 10, 2020 WebPage Regulatory News
    News

    NGFS Advocates Environmental Risk Analysis for Financial Sector

    NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.

    September 10, 2020 WebPage Regulatory News
    News

    MAS Issues Guidelines to Promote Senior Management Accountability

    MAS published the guidelines on individual accountability and conduct at financial institutions.

    September 10, 2020 WebPage Regulatory News
    News

    APRA Formalizes Capital Treatment and Reporting of COVID-19 Loans

    APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.

    September 09, 2020 WebPage Regulatory News
    News

    SRB Chair Discusses Path to Harmonized Liquidation Regime for Banks

    SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.

    September 09, 2020 WebPage Regulatory News
    News

    FSB Workshop Discusses Preliminary Findings of Too-Big-To-Fail Reforms

    FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.

    September 09, 2020 WebPage Regulatory News
    News

    ECB Updates List of Supervised Entities in EU in September 2020

    ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.

    September 08, 2020 WebPage Regulatory News
    News

    OSFI Identifies Focus Areas to Strengthen Third-Party Risk Management

    OSFI published the key findings of a study on third-party risk management.

    September 08, 2020 WebPage Regulatory News
    News

    FSB Extends Implementation Timeline for Framework on SFTs

    FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.

    September 07, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5796