Chairman Kim Byung-hwan meets with CEOs from across the financial industry... Household Debt Management & Internal Controls to be Strengthened

[Korea Financial Times, Han Aran] Kim Byung-hwan, chairman of the Financial Services Commission, will hold a series of meetings with CEOs of major financial institutions, including credit business, securities, insurance, financial investment and savings banks, starting with banks on Tuesday. Kim has been emphasizing financial market stability, including household debt management and real estate project financing (PF), and is expected to deliver related messages at the meetings. He is also expected to call for strengthening internal controls in light of the recent spate of financial incidents.

According to the financial sector, Kim will meet with bank chiefs to discuss major issues. CEOs of five major banks, including KB, Shinhan, Hana, Woori, and NH, as well as regional banks, foreign banks, and internet banks, are expected to attend. The meeting will be Kim's first event with the financial sector in about three weeks after his inauguration on the 31st of last month.

Starting with the head of the bank, Chairman Kim will hold a meeting with CEOs of the credit business on the 22nd, the insurance business (life and non-life insurance companies) on the 28th, the financial investment business on the 29th, the savings banking business on the 2nd of next month, and the asset management business on the 5th. After that, he plans to conclude the relay meeting by business sector with the chairmen of major financial holding companies.

As it is the first time to officially meet with representatives from each business sector, attention is being paid to Chairman Kim's message to the industry. Chairman Kim is expected to first ask for cooperation in managing household debt, which has been rapidly increasing recently. Before taking office, Chairman Kim has announced his plan to put "financial market stability" as a top priority.

After taking office, he announced his plan to quickly address the four major risk factors in the financial market, including ▲ household debt ▲ real estate PF ▲ small business owners and self-employed debt ▲ secondary financial sector soundness. According to financial authorities, household loans in the financial sector increased by 5.3 trillion won (4.3 billion U.S. dollars) in total at the end of last month, widening the increase from 4.2 trillion won (4.1 billion dollars) in the previous month. The growth has been on the rise for four consecutive months since April.

The financial authorities plan to implement the goal of managing household loan growth within the nominal GDP growth rate through communication with related ministries and the financial sector without a hitch, and establish a loan practice that borrows within the repayment capacity and pays off by dividing it from the beginning through the stress total debt repayment ratio (DSR).

Earlier, Chairman Kim said in his inauguration speech, “In the case of household debt, we will vigilantly and thoroughly manage it by preparing a detailed contingency plan in advance to prevent risks from escalating amid expectations of interest rate cuts and the recovery of the real estate market.”

It is also expected to order strengthening internal control over a series of financial accidents, including inappropriate loans from Woori Bank, which were recently revealed by the Financial Supervisory Service's inspection. The Financial Supervisory Service(FSS) said on the 9th that it found that Woori Bank executed a total of 42 loans worth 61.6 billion won from April 3, 2020, to the relatives of former Woori Financial Group Chairman Sohn Tae-seung and related borrowers. Of these, 28 cases (35 billion won) were found to have been improperly treated without following usual standards and procedures.

In a request for a confirmation hearing submitted to the National Assembly before taking office, Chairman Kim stressed, “We will consider necessary measures by reviewing the appropriateness of the level of sanctions under the Financial Services Act for embezzlement and the conditions for the proper operation of the internal control system,”

It is also expected to call for the introduction and effective implementation of the accountability structure to prevent financial accidents. The accountability structure map is a system that specifies who is responsible for major tasks of a financial company in advance so that internal control responsibilities cannot be delegated to subordinates. Financial holding companies and banks are required to submit the accountability structure to the financial authorities by January 2 next year, and financial investment companies (securities firms) and insurance companies by July 2, 2026 at the latest, depending on their asset size.

In order to introduce the accountability structure early, the financial authorities have decided to reduce or exempt sanctions for companies that submit their accountability structure by the end of October and self-detect and correct violations of the law by their employees during the pilot period (November this year to early January next year).

It is also expected to request support measures for vulnerable groups such as small business owners and self-employed people. Chairman Kim held a meeting with small business owners and self-employed people on the 1st as his first move since taking office and said, "We will discuss additional ways to support small business owners with private financial institutions such as banks." Last month, the government announced measures to increase the size of the New Start Fund, a small business debt adjustment support program, from 30 trillion won to 40 trillion won + α, and extend the period subject to debt adjustment to the first half of this year. The Financial Services Commission will also come up with a "plan to improve support for ordinary people and self-employed people" and announce and push for it during the third quarter.

At his confirmation hearing, Chairman Kim also expressed his intention to consider extending the loan maturity and delaying interest repayment measures in consideration of the burden on small business owners and self-employed people to repay interest due to prolonged high interest rates. Since April 2020, financial authorities have implemented measures to extend and repay loans to small and medium-sized companies and small business owners affected by COVID-19. There are 286,100 borrowers using the COVID-19 maturity extension program, and the balance of loans is 57.92 trillion won, which will mature in September next year.

It is expected to focus on real estate PF soft landing plans and soundness issues with the second financial business, including credit business companies and savings banks. Financial companies submitted plans to organize real estate PF evaluation workplaces by the 9th, which received "significant" or "concern of insolvency" ratings, according to the FSS order. The FSS will conduct on-site inspections of financial companies that have insufficiently submitted plans to deal with insolvent PF workplaces.

Initially, the Financial Supervisory Service expected 2~3% of the 230 trillion won real estate PF workplaces to be sold at light or short sale, but the actual size of workplaces subject to liquidation is said to have increased further as the delinquency rate increases. The delinquency rate of PF loans in the financial sector was 3.55% as of the end of March, up 0.85 percentage points from the end of last year (2.7%). In particular, the delinquency rate of PF loans at savings banks jumped 4.3 percentage points from 6.96% to 11.26% during the same period.

There is also a possibility of emphasizing the social responsibility of the financial sector to credit business companies in relation to the recent non-settlement of Timon and Wemakeprice. There may be discussions on measures related to the burden of losses, such as support for refunds from credit card companies.

Chairman Kim will discuss the strategies and tasks for insurance reform prepared by the insurance industry and the Insurance Reform Council. The Financial Services Commission plans to prioritize life-like tasks such as reducing insurance complaints and hold monthly meetings until the end of the year to review 10 strategies and 60 detailed tasks. It will also discuss with the securities industry the need to abolish the financial investment income tax, which is scheduled to be implemented in January next year.

Han Aran (aran@fntimes.com)