960418

Korean bank

interest rates

set to fall

SEOUL: South Korean interest rates are set to fall after the central bank announced lower bank reserve requirements on Thursday, bankers and analysts said.

The decision to lower the requirements the average proportion of total deposits banks must place as reserves with the central bank to 7.4 percent from 9.4 percent was welcomed by stock investors.

Banking stocks, which have underperformed the main stock market index, jumped on hopes of greater bank profitability.

The move takes effect next Tuesday.

A Bank of Korea statement said the cut would allow bank lending rates to fall by an average of 0.22 percentage points.

It said the move would free up 2.74 trillion won ($3.51 billion). However, because of fears over inflation, banks would be required to use the money to buy Monetary Stabilisation Bonds with an annual yield of about 11 percent.

Taking into account earnings from the bonds, the reduction in reserve requirements would help domestic banks improve their annual earnings by a combined total of 300 billion won, the central bank said.

The banking sub-index closed on Thursday 6.68 points, or 1.09 percent, higher at 617.98.-Reuter