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(LEAD) Gov't to ease restrictions on banks' capital

All News 17:00 October 07, 2016

(ATTN: UPDATES with remarks on Hanmi Pharm in last 4 paras; ADDS photo)

SEOUL, Oct. 7 (Yonhap) -- South Korea will relax regulations on local banks' capital to help them improve profitability and raise global competitiveness, the nation's top financial regulator said Friday.

Yim Jong-yong, chairman of the Financial Services Commission (FSC), admitted that banks here are subject to some "excessive" rules including those on loan loss reserves.

"(The government) will lay the groundwork for domestic banks to raise their investment appeal and compete in the global market by eliminating factors causing an excessive burden for capital increase and worsening profitability," he said in a meeting with bank officials.

In a concrete step, the government has decided to regard loan loss reserves as part of their common capital stock.

Currently, the funds or other financial assets set aside to cover estimated potential losses from late loan payments or defaults are deducted from capital stock.

The rule has been a burden on local banks as they are required to meet the strict capital adequacy ratio standards of the Bank for International Settlements (BIS) amid the country's restructuring of the shipping and shipbuilding industries.

Once the regulation on loan loss reserves is eased, the FSC said, the total capital ratio of the banks will rise by an average of 0.6 percentage point by the standard of data available at end-March this year.

A file photo of Yim Jong-yong, chairman of the Financial Services Commission. (Yonhap)

The government also plans to push for the revision of legislation on earned surplus reserves, it added.

The nation's law on banking services calls on banks to set aside more profit reserves than the amount required by the commercial law.

The government will try to amend the law on banking services to put the amount on the par with that of the commercial law, according to the FSC.

A computer-generated image, provided by Yonhap News TV, of a stock price scandal involving Hanmi Pharmaceutical. (Yonhap)

In a separate meeting with other FSC officials later in the day, meanwhile, Yim made clear that the authorities will look speedily and throughly into a stock scandal involving Hanmi Pharmaceutical.

The Seoul-listed drugmaker is alleged to have deliberately delayed the sensitive disclosure that Boehringer Ingelheim, based in Germany, aborted an anti-cancer medicine contract worth more than US$700 million.

The case has rekindled a controversy over the short selling practices amid suspicions that some institutions exploited Hanmi's belated public notice.

Yim said the government will "exactly analyze the reason for the Hanmi incident and improve a related system, if needed, as early as possible."


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