South Korea considering asking banks to build more capital buffers

SEOUL (Reuters) – South Korea is considering requiring banks to hold more capital as part of efforts to make the banking system better prepared for financial instability, the top financial regulatory agency said on Thursday.

The Financial Services Commission (FSC) said in a statement it was considering raising the countercyclical capital buffer (CCyB) ratio from the current zero percent as early as in the second half of this year.

It said the authorities may have raised the ratio from late 2019 following sharp increases in lending but were unable to do so due to shocks from the COVID-19 pandemic in 2020.

The CCyB is designed to be adjusted so that lenders should accumulate capital to create buffers that strengthen the resilience of the banking sector during periods of stress when losses materialise.

The FSC also said it would also strengthen other regulatory guidelines about supervising banks and making prompt instructions on individual banks to build more capital buffer, when needed, depending on the outcome of regular stress tests.

The FSC said it would finalise plans by the end of June for implementation from the second half of the year.