S. Korea's ruling party calls for lower reserve ratio

SEOUL, Dec. 9 (Yonhap) -- South Korea's top ruling party policymaker called on the central bank Tuesday to slash the reserve ratio on deposits to help local banks ride out the ongoing credit crunch.

The remarks by Lim Tae-hee, head of the ruling Grand National Party policy
committee, comes as local banks stagger from the U.S.-triggered liquidity crunch
despite a string of emergency measures to supply cash to banks and lower interest
rates.
Analysts have criticized the Bank of Korea for not being active enough in
implementing support measures when banks, businesses and households are bearing
the brunt of the worldwide financial tsunami and its knock-on effect on the real
economy.
"There is a need for the Bank of Korea to reconsider its cash reserve ratio so
that it fits the current circumstances," Lim told a press briefing Tuesday.
"Local banks need more liquidity so that they can lend money to companies."
The central bank decided last week to pay 500 billion won ($346 million) worth of
interest on local banks' cash reserves, ignoring growing calls to slash the
reserves ratio from the current 7 percent.
The reserve ratio refers to the percentage of customer deposits that banks are
required to set aside in cash. If the central bank cuts the ratio, local
commercial banks will have more room in making loans.
South Korean lenders have been increasingly reluctant to extend loans,
particularly to smaller companies. Local banks are suffering from cash shortages,
unable to easily raise funds or roll over debts.
hayney@yna.co.kr
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