BOK pays interest on local banks' required reserves

SEOUL, Dec. 11 (Yonhap) -- The Bank of Korea (BOK) on Thursday paid local banks
about 500 billion won (US$372 million) in interest on their required reserves at
the central bank in an effort to help ease a credit crunch.
"A total of 500.2 billion won in interest was paid to them as part of efforts to
help assuage the credit squeeze," the BOK said in a statement.
Last week, the BOK decided to make a one-off interest payment on the reserves to
local lenders for the first time since December 1986. Currently, the reserve
requirement ratio on money market deposit accounts and demand deposits stood at 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 handing out loans.
The move came as South Korean banks have been increasingly reluctant to extend
loans, particularly to smaller firms, amid the slowing economy and a credit
crunch.
Despite a round of rate cuts by the BOK, market interest rates like yields on
certificate of deposits have not fallen as much as expected, deepening liquidity
strains on the financial system.
Earlier in the day, the BOK cut the benchmark interest rate by a record one
percentage point to an all-time low of 3 percent in an effort to bolster the
slowing economy.
sooyeon@yna.co.kr
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