Banks Adjust Risk Weights to Fuel Corporate Investment

In a bold move to stimulate growth finance, financial authorities have decided to revise risk weights for banks' equity investments, significantly lowering them from 400% to 100%. This adjustment is part of a broader strategy to encourage banks to increase their funding to productive sectors, ensuring a boost in corporate investment.

Ensuring Financial Stability Amid Changes

Alongside these encouraging measures, plans are underway to increase capital reserve requirements for expanding mortgage loans. This dual approach aims to maintain financial stability while fostering an environment conducive to investment and growth.

Revising Regulations to Match Current Conditions

Kwon Dae-young, vice chairman of the Financial Services Commission, highlighted the urgency of updating sector-specific regulations, including prudential measures like risk weights that no longer align with current market conditions. "The financial sector must now expand funding to productive areas," Kwon emphasized, signaling a shift towards more dynamic financial policies.

Clarifying International Financial Norms

The authorities are also working to specify the requirements for exceptions under international norms such as Basel III, where risk weights can be adjusted to 100% under certain conditions. This clarification aims to remove ambiguities and enable financial companies to more effectively utilize these provisions.

Adjusting Capital Reserve Requirements

To balance the scales, financial authorities are considering an increase in the minimum risk weight for mortgage loans from 15% to 25%. However, to mitigate the impact on financial companies, this adjustment may initially apply only to new loans, ensuring a gradual transition that monitors market reactions.

The Role of Risk Weight in Financial Health

Risk weight plays a critical role in determining the capital adequacy ratio, a key indicator of financial companies' soundness. By adjusting these weights, authorities aim to guide lending practices without compromising financial stability.

Call for Flexible Capital Regulations

Participants in the discussions have also called for revisions to other capital regulations, such as the net capital ratio (NCR), to further facilitate corporate investment. "NCR regulations need to reflect the realities of small and medium-sized securities firms," stated an official from the Korea Financial Investment Association.

Launching a Massive Public-Private Joint Fund

In an ambitious effort to secure capital for cutting-edge industries, financial authorities are urging companies to participate in a 100 trillion won public-private joint fund. This initiative aims to bolster investments in strategic sectors like artificial intelligence, biotechnology, and energy, with plans to potentially expand the fund's size based on demand.