[99 Trillion Won Lending Capacity Secured for Financial Sector] · RWA Exclusion When Recurrence Prevention Measures Established · Financial Authorities Call It "A Policy Supplementary Budget"
Financial holding companies and banks facing an estimated 1 trillion won in penalties for misselling Hong Kong H-index equity-linked securities (ELS) will see their capital regulation disadvantage period reduced from 10 years to 3 years. Financial authorities predict this will create approximately 99 trillion won ($72 billion) in lending capacity.
The Financial Services Commission announced capital regulation rationalization measures at the "5th Productive Finance Grand Transformation" meeting held at the Korea Federation of Banks building in Jung-gu, Seoul on Wednesday.
Financial incidents that meet both criteria — having recognized capital costs for three years or more and accounting for 5% or more of net operational risk losses — will be excluded from risk-weighted asset (RWA) calculations. To qualify, institutions must either exit the business where the incident occurred or establish recurrence prevention measures including governance structure improvements, then obtain approval from the Financial Supervisory Service governor. This means financial holding companies facing penalties for Hong Kong H-index ELS misselling will be able to reduce their capital burden after approximately three years.
Banks' long-term overseas equity investments and foreign branch retained earnings will also be excluded from RWA calculations. The FSC expressed caution regarding the introduction of stress capital buffers, stating that "tightening regulations too strongly could restrict capital supply."
Insurance sector regulations will also be eased. Risk coefficients used in calculating solvency ratios (K-ICS) for policy program investments will be lowered from 49% to below 20%. Renewable energy and artificial intelligence infrastructure will be added to infrastructure investment categories qualifying for the 20% risk coefficient.
Financial authorities estimate these measures will create total lending capacity of 98.7 trillion won, including 74.5 trillion won in corporate loans from the banking sector and 24.2 trillion won in infrastructure loans from insurers. FSC Chairman Lee Bok-hyun emphasized that "these measures are a kind of policy supplementary budget."
AI-translated from Korean. Quotes from foreign sources are based on Korean-language reports and may not reflect exact original wording.
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