From tomorrow, banks and insurance firms will be banned from holding bonds by a single conglomerate exceeding ten per cent of total bond holdings at the end of the previous month, the Financial Supervisory Commission (FSC) said.

The ceiling for investment trust firms was set at 15 per cent.

Any holdings above the limit will have to be disposed of in phases, with 50 per cent of excess holdings divested by the end of 1999 and the remainder by end-2000, the FSC said.

The regulation is intended to keep institutions from investing excessively in issues by top conglomerates and ease a credit crunch among smaller firms.

The bond holding ceiling also reflects concerns that over-concentration of investment in bonds by heaviliy-leveraged conglomerates, or chaebol, may deteriorate the asset quality of financial institutions, DSC said.

It said the newregulation would help push conglomerates into re-structuring by limiting their bond issues while facilitating the government's own bond issues.

Financial institutions have been reluctant to buy bonds issued by small and medium-sized companies, triggering bankruptcy concerns.