The loan-to-deposit ratio for South Korean banks dropped to 95.3 percent in March as local lenders reduced wholesale funding amid the planned restriction on such funding, the financial watchdog said Monday.

The ratio of loans to deposits for 15 local banks averaged 95.3 percent as of the end of March, according to the Financial Supervisory Service (FSS). The ratio is calculated by dividing won- denominated monthly average loan balance by won-denominated monthly average deposit balance.

The March figure was 17.1 percentage points lower than that in December 2009 when the regulator proposed a regulation, which requires banks to keep their loan-to-deposit ratios below 100 percent.

The cap on the ratio was adopted in August 2010 in a bid to prevent banks' excessive competition for asset growth through wholesale funding such as issuing bank debentures and certificate of deposits (CD).

Local lenders were originally given a grace period to meet the requirements until the end of 2013, but the period was shortened to take effect starting end-June 2012 as part of efforts to slow down the growth of household debts.

The ratio of all 15 regulated banks has been below 100 percent since October 2011, and it trended downward, the watchdog said.

Wholesale funding by banks decreased ahead of the planned implementation of the cap. Since December 2009, the average monthly balance of CDs held by 15 banks has contracted 84.4 percent, while the balance of bank debentures has reduced 34.3 percent.

Monthly average balance of deposits for the banks has increased 28.6 percent over the cited period.