Korean lenders to increase loan-loss reserves by over 20 %

Korean lenders will increase their loan-loss reserves by more than 20 percent to cope with a potential global financial crisis.

The Financial Supervisory Service, Seoul's market regulator, has called for a significant increase in emergency reserves compared to the end of September to cover defaults in the fourth quarter, reports Yonhap.

The move would boost the amount of money set aside at the country's commercial banks to around 9.7 trillion won or US$8.3 billion, up 22.8 percent from 7.9 trillion won accumulated in the third quarter.

"The watchdog has asked each bank to increase backup funds by about 1.5 trillion, which could better insulate the country from a worldwide meltdown such as the one that followed the Lehman Brothers collapse in late 2008," a source said, without elaborating on details.

An FSS official said increasing the loan-loss reserve is necessary because the ongoing eurozone crisis is not showing any clear signs of easing.

Financial insiders, meanwhile, said that if emergency reserves are increased, the total amount of funds that can be used to cover losses in a crisis situation could reach 33 trillion won by year's end, up from 26.2 trillion won tallied at the end of March.