Son Byung-du "Restoring Securities Firms' Call Loan Limit to 15% from August"

Son Byung-du, Vice Chairman of the Financial Services Commission, is speaking at the 6th Economic Central Disaster and Financial Risk Response Team meeting held at the Bankers' Hall in Jung-gu, Seoul on the 2nd. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Koh Hyung-kwang] Sohn Byung-doo, Vice Chairman of the Financial Services Commission, said on the 23rd, "In order not to burden the market, the call borrowing limit for securities firms will be maintained at the current level in July, and unless there are special issues, it is planned to be restored to the existing level of 15% from August."

Vice Chairman Sohn presided over the 'Financial Risk Response Team Meeting' at the Bankers' Hall in Myeong-dong, Seoul, and stated, "The soundness regulations for securities firms are also being approached with a long-term perspective in accordance with changes in market conditions."

The financial authorities temporarily expanded the monthly average call borrowing limit for securities firms from 15% to 30% of their equity capital at the end of March to resolve liquidity shortages caused by the novel coronavirus disease (COVID-19). After the market situation stabilized to some extent, the call borrowing limit for securities firms was gradually normalized, including a reduction to 25% starting last month.

Vice Chairman Sohn mentioned, "Regarding the regulation on cash assets held by sellers of repurchase agreements (RP), which will be implemented from the 1st of next month, we plan to temporarily ease it so that there is no sudden surge in funding demand at the end of this month." He added, "Securities firms must have learned many lessons from the liquidity difficulties experienced during this crisis. The government will work with the industry to consider the best measures to prevent excessive reliance on short-term funding for long-term investments."

Furthermore, Vice Chairman Sohn evaluated that despite the impact of COVID-19, the delinquency rate of banks has not particularly worsened. Corporate loans by banks increased significantly from March, when COVID-19 measures were fully implemented, with an increase of 49.8 trillion won in just March and April. This amount corresponds to 102% of last year's annual increase, marking the largest increase ever. At the end of April, the delinquency rate on won-denominated loans by domestic banks was 0.4%, up 0.01 percentage points from the end of the previous month, but down 0.08 percentage points compared to the same period last year.

He said, "The soundness of banks and support for the real economy are not conflicting but complementary." He added, "Active support for the real economy by banks is possible only when soundness is ensured." He emphasized, "Without active financial support for companies temporarily facing difficulties, the deterioration of the real economy and the increase in non-performing loans due to corporate insolvency will ultimately lead to a decline in the soundness of financial companies. Therefore, active support for the real economy by the banking sector is not only support for companies but also essential for maintaining the soundness of the banking sector."

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