[THE INVESTOR] South Korea will ease regulations of loan loss reserves for local banks to improve their profitability, the top financial regulator said on Oct. 7.

Yim Jong-yong, chairman of the Financial Services Commission, 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.

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.

(theinvestor@heraldcorp.com)