A plan to ease the risk weight (RW; risk-weighted) on unlisted corporate stocks acquired through banks' investments in corporations from the current 400% to 250% will take effect as early as next month. Banks apply risk weights by asset risk level; the higher the risk weight, the greater the burden and the less lending capacity they have. The financial authorities projected that the latest deregulation would secure additional investment capacity of about 3.1 trillion won.
According to the financial sector on the 12th, the financial authorities have prepared a revision to the Enforcement Rule of Banking Supervision with this content. The relaxed rules are expected to apply as early as next month. The Financial Services Commission announced the Plan to rationalize bank and insurance capital regulations for productive finance in September last year but delayed the implementation timing and recently completed the enforcement rule revision.
The authorities will lower the RW, which had been 400% on bank-held stocks, to 250%. Until now, only listed stocks and unlisted stocks of corporations with which banks have long-term management relationships were subject to 250%.
RW is the ratio used to calculate how much capital a bank must set aside for a given loan. An RW of 400% means that if a bank acquires 10 billion won worth of unlisted corporate stocks, it must set aside 40 billion won in capital. Unlisted stocks for short-term trading or listed stocks of corporations with less than five years in business will continue to be subject to an RW of 400%. However, if held for three years or more, even unlisted stocks will be subject to the 250% standard.
Once the deregulation applies, commercial banks' risk-weighted assets (RWA) are expected to decrease, expanding investment capacity. The financial authorities estimate that this measure will reduce total RWA by 3.16 trillion won.