Yoon Seok-heon "Maintain Loan Volume Control for the Time Being... Need for Financial Supervisory Service Independence"

"Increase in Debt May Cause Systemic Risk"
"Dividend Payout Ratio Likely Between 15% and 25%"

Yoon Seok-heon, Governor of the Financial Supervisory Service

[Asia Economy Reporter Kim Hyo-jin] Yoon Seok-heon, Governor of the Financial Supervisory Service (FSS), stated on the 23rd that regarding the recent stringent household loan regulations in the banking sector, "For the time being, we should maintain the current total volume management."

Governor Yoon made this remark during a year-end meeting with the press corps held via video to prevent the spread of the novel coronavirus infection (COVID-19), saying, "In the second half of this year, especially in November, the increase in household loans was very steep, mainly in unsecured loans."

The banking sector is tightening loans by implementing high-intensity regulations such as temporarily suspending major unsecured loan products in response to orders from financial and supervisory authorities.

Governor Yoon diagnosed, "From the perspective of individual financial companies, they would want to provide loans, but excessively high household debt poses risks that are not easily visible to financial companies."

He also explained, "When all financial companies are gathered, the increase is enormous," adding, "Since this could lead to systemic risk, the FSS is monitoring the situation with heightened vigilance."

Regarding criticisms from inside and outside the banking sector that the authorities' intervention might be excessive, Governor Yoon said, "Considering the level of household debt, it is not excessive," but added, "However, I fully understand the need for capital supply to sectors like self-employed businesses, and we will apply this aspect to the direction of household loan supervision."

Concerning the discussion about applying borrower-level Debt Service Ratio (DSR) regulations from next year, Governor Yoon stated, "We will not suddenly introduce DSR regulations causing side effects as some fear," and "We will sufficiently gather opinions from the media and experts."

Regarding the FSS's recommendation to financial holding companies to refrain from dividends in preparation for potential COVID-19 related defaults, Governor Yoon expressed, "Since the situation is risky due to COVID-19, wouldn't it be better to accumulate capital now and pay dividends later?"

Addressing the criticism that some overseas countries like the U.S. and the U.K. have allowed higher dividends, he said, "This seems to be a misunderstanding," pointing out, "We are asking to lower dividends from previously high levels, whereas Europe, the U.K., and the U.S. had very low dividends and have slightly eased restrictions."

Governor Yoon added, "Although we are still coordinating with the financial sector, I think the dividend payout ratio will be between 15% and 25%."

"Emphasis on FSS Independence"

Regarding the independence of the FSS, he reiterated the need to reform the supervisory system, stating, "Financial accidents such as fund scandals show specific patterns," and "Risks are created in the process of the government trying to foster the financial industry, and these risks ultimately lead to consumer damage."

Governor Yoon argued, "Under the dual supervisory system (Financial Services Commission-FSS), the responsibility between the FSC's supervisory policies and the FSS's supervisory execution becomes unclear," adding, "As a result, post-incident improvements are not properly made, causing inefficiency in financial supervision."

According to current law, the FSC oversees financial policy and supervision, while the FSS is entrusted with inspection, supervision, administrative sanctions, and other duties and authorities. Governor Yoon previously advocated for the independence of the FSS during a national audit.

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