South Korea tightens liquidity rules as market improves

The banking sector’s liquidity coverage ratio will be rolled back to 100% in 2025.

South Korean authorities will begin normalizing the eased regulations in financial sectors beginning 2025, citing improved money market conditions.

The banking sector’s liquidity coverage ratio, which had been eased to 97.5%, will be rolled back to 100% beginning 1 January 2025, following a meeting by South Korea's Financial Supervisory Commission (FSC) with related authorities and industry organisations.

For financial investment businesses, the cap on the amount of bonds that can be included when hedging risks associated with derivatives-linked securities (DLS) will be downsized to 8% by that date.

The loan-to-deposit ratio of savings banks and the KRW-based currency liquidity ratio of specialized credit finance businesses will also be gradually rolled back in stages.

From January to June 2025, savings banks will be subject to a loan-to-deposit ratio of 105% (down 5 percentage points (ppt) from 110% currently).

Over the same period, specialized credit finance businesses will be subject to a KRW-based currency liquidity ratio of 95% (up 5 ppt from 90% currently).

In the second quarter of 2025, authorities said that they will decide on whether to extend the period or completely roll back the eased regulatory measures.