Vice Chairman Kim So-young of the Financial Services Commission presided over a meeting with officials from the Financial Supervisory Service, Korea Development Bank, Korea Credit Guarantee Fund and other market experts on November 23 to check condition of the current bond and short-term money markets and discuss plans for various market stabilization programs and eased regulatory measures.
Market stabilization programs
At the meeting, the authorities decided to extend the period of operating the bond market and short-term money market stabilization programs, which began to operate since last year. Although the demand for these support programs this year has been considerably lower than the previous year, the authorities decided to extend the period of operation for one year for the programs that are set to expire soon. As such, the operation of the bond market stabilization fund and the corporate bond and CP (commercial paper) purchase program will be extended until the end of December 2024, and the availability of the PF-ABCP purchase program for PF-ABCPs issued by securities firms will be extended until the end of February 2025. The primary collateral bond obligation (P-CBO) support program run by the Korea Credit Guarantee Fund and intended to support bond market stabilization will continue to operate as planned until the end of 2024.
Eased regulatory measures
The authorities also discussed extending the period of operating eased financial regulatory measures which are set to expire at the end of this year. Although the current liquidity and soundness indicators show that financial institutions are capable of maintaining regulatory ratios without the support form eased regulations, considering the possibility of abrupt changes in market situations, the authorities decided to extend the availability of eased regulations until the end of June 2024. The eased regulatory measures subject to the period extension include the following.
a) Banks: Temporary easing of liquidity coverage ratio (LCR) from 100 percent to 95 percent (expiration extended from end of 2023 previously to end-June 2024)
b) Savings banks: Temporary easing of loan-to-deposit ratio from 100 percent to 110 percent (expiration extended from end of 2023 previously to end-June 2024)
c) Specialized credit finance businesses: Temporary easing of KRW-based currency liquidity ratio from 100 percent to 90 percent (expiration extended from end of 2023 previously to end-June 2024)
d) Specialized credit finance businesses: Temporary easing of the creditable assets to real estate project finance exposure ratio by 10 percentage points (expiration extended from end of 2023 previously to end-June 2024)
e) Financial investment businesses: Postponement on downsizing (from 12% to 8%) the cap on the amount of bonds (issued by specialized credit finance businesses) that can be included when hedging risks associated with equity-linked securities (ELS) under management (expiration extended from end of 2023 previously to end-June 2024)
f) Financial investment businesses: Easing of net capital ratio risk weight (32 percent) when purchasing PF-ABCPs guaranteed by own company (expiration extended from end of 2023 previously to end-June 2024)
In the second half of 2024, the authorities will decide whether to additionally extend or begin to roll back the availability of eased regulatory measures.
The FSC and the FSS will continue to closely monitor risks in each financial sector and respond appropriately. Vice Chairman Kim So-young said that it may take some time to sufficiently get behind the risks built up during the low interest rate and abundant liquidity period, and that the authorities will continue to stay alert and maintain an adequate response system to ensure market stabilization.
* Please refer to the attached file for details.