S.Korea to accept more hybrid sec as core capital

SEOUL, Dec 23 (Reuters) - South Korea will allow domestic banks to increase the issuance of hybrid securities, which have both equity and debt characteristics, to bolster their core capital ratios, a regulatory agency said on Tuesday.

The move is the latest in a series of government steps to help banks raise capital and encourage lending to the cash-strapped economy, which include a planned $15 billion fund to recapitalise banks [ID:nSEO216200]

The new fund is supposed to buy preferred shares and hybrid securities issued by banks in 2009 to lift their tier-1 capital, the core measure of a bank's financial strength.

The Financial Supervisory Service (FSS) said that it would allow banks to fill up to 30 percent of their tier-1 capital with non-innovative hybrid securities, versus the current 15 percent.

Hybrid securities guarantee a certain level of interest rates but tend to have maturity of more than 30 years, with non-innovative hybrid securities having no obligation to raise interest rates for investors before they mature.

The regulator said in a statement that banks could secure as much as 15 trillion won ($11.22 billion) in additional capital from hybrid security issues, bringing their total capital from such issues to 24.4 trillion won.

"If they issue hybrid securities as much as they can, their tier-1 capital ratios will rise by 2.03 percentage points to 10.31 percent from 8.28 percent at end-September," it said.

Germany and the Netherlands allow banks to make up half of tier-1 capital with hybrid securities, while Britain limits them to 15 percent, according to the FSS. ($1=1336.9 Won)

(Reporting by Kim Yeon-hee; Editing by Jonathan Hopfner)