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Sound BIS Rate Cut to 10 Percent or More

Posted January. 09, 2009 04:29,   


The government plans not to penalize banks from next month in evaluating management performances if their BIS capital adequacy ratios are 10 percent or more.

The government is gearing up to tackle the credit crunch, which will likely worsen after the Lunar New Year holidays, given yesterday’s launch of the Creditor Banks Restructuring Coordinating Committee. Kim Byeong-ju, a professor emeritus of Sogang University, will head the committee.

“The government will not intervene by any means even if a bank’s BIS ratio drops to the 10-percent range from the current standard of 12 percent by expanding its lending from February,” a senior financial regulator said.

The decision to lower the BIS rate was prompted by criticism that the government’s recommendation in December last year to raise the rate to 12 percent this month worsened the cash flow of businesses and households because banks restricted or stopped lending.

“The government originally asked banks to raise the BIS rate to 12 percent so that they can accumulate ample capital if their financial health erodes once corporate restructuring begins early this year. However, the criterion to evaluate a healthy bank is still a BIS rate of 10 percent,” the regulator said.

Assuming a BIS rate of 12 percent as the government guideline, many banks have issued corporate and hybrid bonds with high interest to raise the rate, while restricting new loans to individuals and companies.

At the first Meeting for Emergency Economic Measures convened by President Lee Myung-bak yesterday, the Financial Services Commission also announced provision of financial assistance to small and medium-size enterprises by easing the evaluation standards of the credit guarantee.

According to the plan, a business can receive loans from banks with the help of the credit guarantee system even if sales have dropped up to 40 percent, up from 25 percent.

Businesses whose properties have been put under provisional seizure can apply for credit guarantees if the provisional disposition on their assets has ended for more than six months.

Following the launch of the restructuring committee, the Korea Federation of Banks and financial regulators will list shipbuilders and construction companies subject to restructuring as soon as possible.

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