Card Companies' Leverage Limit Expanded from 6 to 8 Times "Expected to Ease Burden of Entering New Businesses"

Financial Services Commission Approves Amendment to Specialized Credit Finance Business Supervision Regulations on 23rd
Obligation to Set Aside Loan Loss Provisions Imposed on Real Estate PF Debt Guarantees by Credit Finance Companies

[Asia Economy Reporter Kangwook Cho] The leverage limit for credit card companies will be expanded from 6 times to 8 times. Additionally, the allowance for loan losses related to real estate project financing (PF) loans and debt guarantees by specialized credit finance companies (specialized credit companies) will be rationalized. A limit on the handling of real estate PF debt guarantees will also be newly established.

The Financial Services Commission announced on the 23rd that it held a regular meeting and approved the amendment to the Supervision Regulations on Specialized Credit Finance Business containing these details.

According to this amendment, the leverage limit for credit card companies will be expanded from the existing 6 times to 8 times. However, if more than 30% of the net income for the most recent year has been paid out as dividends, the leverage limit will be restricted to 7 times to allow for preemptive management of the leverage limit.

The leverage ratio is the value obtained by dividing total assets by equity capital. Financial authorities set leverage limits to prevent credit card companies from excessively increasing assets through debt.

Many credit card companies, despite maintaining sound financial health, were restricted in entering new businesses as they were close to the leverage limit (6 times their equity capital). The Financial Services Commission expects that the expansion of the leverage limit will increase the capacity for total asset growth, thereby easing the financial burden associated with entering new businesses such as big data ventures.

The loan loss allowance system related to real estate project financing (PF) loans and debt guarantees by specialized credit companies will also be improved.

Currently, there is no established standard for loan loss allowance for real estate PF debt guarantees, but going forward, an obligation to set aside loan loss allowances will be imposed on real estate PF debt guarantees in the same manner as real estate PF loans.

The regulation allowing a reduction in loan loss allowances when there is a payment guarantee from an investment-grade company or when the related asset is an apartment has also been deleted.

In addition, the amendment includes a provision limiting the total amount of real estate PF loans and debt guarantees by specialized credit companies to within 30% of credit assets.

This amendment will be implemented from the 1st of next month after going through the notification procedure.

However, regarding the limit on real estate PF debt guarantees, a one-year grace period has been set considering the regulatory compliance burden and other factors.

This content was produced with the assistance of AI translation services.