SEOUL South Korea will gradually unwind relaxed regulations on banks from the second half of this year, the country's financial regulator said on Tuesday.

In a statement, the Financial Services Commission (FSC) said it would normalise the loan-to-deposit ratio requirement on lenders from July. The ratio had been eased to 105% from the usual 100% late last year in response to a credit crunch in domestic financial markets and extended early this year amid global banking turmoil.

The liquidity coverage ratio (LCR) requirement - a proportion of net cash outflows that each bank has to hold as highly liquid assets - will be raised to 95% for the second half of this year, from 92.5% at present, according to the statement.

The degree of further tightening of the LCR requirement, which was lowered during the COVID-19 pandemic, will be determined at the end of this year with consideration of market conditions, the FSC said.

"In case of an unexpected financial market crisis, the government will proactively review and swiftly implement necessary measures such as a pause on normalisation or easing of regulation ratios," the FSC added.

(Reporting by Jihoon Lee; Editing by Ed Davies)