Yoon Seok-heon, Financial Supervisory Service Chief, "Loan Total Volume Control to Be Maintained for the Time Being" (Comprehensive)

"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 also revealed that sanctions against Shinhan Financial Group are under review in connection with the Lime Fund incident.

During an end-of-year meeting with reporters held via video to prevent the spread of the novel coronavirus (COVID-19), Governor Yoon said, "In the second half of this year, especially in November, household loan growth, centered on credit loans, was very steep," making this remark.

The banking sector is tightening loans by implementing high-intensity regulations such as temporarily suspending major credit 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. However, excessively high household debt poses risks that are not easily visible from the financial companies' standpoint."

He further explained, "When all financial companies are gathered, the increase is enormous. 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 government intervention might be excessive, Governor Yoon said, "Considering the level of household debt, it is not excessive. However, I fully understand that capital supply should be directed toward areas like self-employment, and we will apply this understanding to the direction of household loan supervision."

On the topic of the proposed application of the Debt Service Ratio (DSR) regulation on a borrower basis starting next year, Governor Yoon stated, "We will not suddenly introduce the DSR regulation and cause side effects as some fear. We will thoroughly collect opinions from the media and experts."

"Sanctions on Shinhan Financial Group under review, including specific targets"

Governor Yoon also addressed the possibility of sanctions against Shinhan Financial Group related to the Lime Fund, saying, "This is currently an internal review matter," and added, "We are reviewing the specific targets, possibilities, and scope of sanctions."

He said, "We are examining two areas from various perspectives: internal controls related to the matrix organization and referral sales," and added, "I expect the sanction procedures to begin around February next year."

Regarding the FSS's recommendation for 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, it would be better to accumulate capital now and pay dividends later."

In response to criticisms that some countries like the U.S. and the U.K. have allowed higher dividends, he said, "This seems to be a misunderstanding. We are asking for a slight reduction from previously high dividend levels, whereas Europe, the U.K., and the U.S. had very low levels 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 incidents show specific patterns. Risks are created in the government's process of fostering the financial industry, and these risks ultimately lead to consumer harm."

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. As a result, post-incident improvements are not properly made, causing inefficiencies in financial supervision."

According to current law, the FSC oversees financial policy and supervision, while the FSS is entrusted with inspection, supervision, and administrative sanctions. Governor Yoon has previously advocated for the independence of the FSS during the National Assembly audit.

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