[2021 National Audit] Jeong Eun-bo "Concerns Over Credit Loan Defaults... Judgment on Daejang-dong Financial Sector Inspection After Police and Prosecutor Investigation" (Comprehensive)

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Jeong Eun-bo, Governor of the Financial Supervisory Service, attended the National Assembly's inspection of the Financial Supervisory Service held by the National Assembly's Political Affairs Committee on the 7th, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporters Sunmi Park and Jinho Kim] In the first Financial Supervisory Service (FSS) audit since Jeong Eun-bo’s appointment as the FSS Governor, household debt issues and allegations of preferential treatment in the Daejang-dong development project were brought to the forefront. Additionally, ruling and opposition party lawmakers criticized the FSS for its supervisory negligence in cases such as the Merge Point and private equity fund scandals. In response, Governor Jeong acknowledged responsibility and promised to seek improvement measures.

On the 7th, Governor Jeong appeared before the National Assembly’s Political Affairs Committee for the FSS audit and stated, "There is a possibility that unsecured loans could become non-performing when financial market conditions reverse." This was interpreted as a concern over potential defaults due to increased interest burdens on borrowers if loan interest rates rise significantly as major countries normalize their monetary policies.

Governor Jeong emphasized, "Although the credit loan limit was recently reduced to the level of annual income, it is important to note that these are short-term loans without collateral." He added, "Considering the possibility of a reversal in financial market conditions, we will review risky areas and proactively monitor vulnerable sectors." He also reiterated concerns about a 'perfect storm' in the financial market, which he had highlighted recently. He said, "Various environmental factors could amplify the force of a typhoon, impacting the macroeconomy. Low interest rate trends or U.S. interest rate hikes could be causes."

As of the end of last month, the outstanding balance of unsecured loans at the five major commercial banks was 141 trillion won, an increase of 105.8 billion won from the end of August. This represents an increase of more than 40 trillion won compared to the end of the third quarter of 2018 (99.4 trillion won).

He bowed to the fact that excessive total loan volume regulations by financial authorities have caused harm to genuine borrowers. On the same day, Yoo Ui-dong, a lawmaker from the People Power Party, pointed out, "Banks have never met the annual household loan volume targets, and this year’s excessive target setting (5-6%) has caused a loan crisis."

In response, Governor Jeong said, "All related agencies and ministries are working to achieve the household loan growth target of around 6%. We have no choice but to impose strict total volume regulations. I agree that delicate management of genuine borrowers is necessary during this process, and we will pay close attention."

Regarding the first trial loss of Sohn Tae-seung, Chairman of Woori Financial Group, in the derivative-linked fund (DLF) lawsuit filed against the FSS, he said, "An appeal has been filed, and further discussions are expected in the second trial." He also explained the reason for the appeal, stating, "The first trial court’s ruling differs significantly from the FSS’s view."

In response to ruling party lawmakers’ criticism that financial holding companies’ boards of directors fail to check management and merely act as 'rubber stamps,' he said, "There are parts where the boards of financial companies do not function properly. We will give serious consideration to the composition of the boards."

Regarding criticism from Yoon Kwan-seok, a Democratic Party lawmaker, that the FSS responded passively to the Merge Point incident, Governor Jeong expressed regret over the delayed measures. He said, "This was the first occurrence of a situation similar to Merge Point, and since it was not a registered entity, legal review took a long time. We are currently conducting a full survey of electronic commerce financial transaction companies that could be subject to registration and are taking comprehensive measures centered on the Office for Government Policy Coordination." According to current electronic financial transaction laws, 58 companies are suspected of selling gift certificates or prepaid transactions without registration.

Regarding cases where internet banks are refusing to increase jeonse (long-term deposit) loans citing system deficiencies, he promised to prepare supplementary measures. Governor Jeong agreed, saying, "Internet banks should not cause such issues due to system deficiencies," and added, "We will promptly take measures to improve their IT systems." He further stated, "We will also discuss how internet banks can provide compensation to consumers who have suffered losses."

Regarding Gwangju Bank’s failure to take any action despite the Supreme Court’s ruling on recruitment corruption, he said, "We will assess the situation and see what role we can play." It is known that about five employees related to recruitment corruption are currently working at Gwangju Bank. He also promised to find improvement measures in response to criticism about the low acceptance rate of interest rate reduction requests and discrepancies among banks.

He also pledged to establish supervisory measures for big tech financial platforms. Governor Jeong said, "As big tech’s entry into finance accelerates, we will develop reasonable supervisory measures such as regulating business conduct to ensure a fair competitive order between digital platforms and financial companies."

Meanwhile, regarding the ruling party’s focused inquiries about inspections and audits of financial companies related to the Daejang-dong development project in Seongnam City, he stated that the FSS would "make a judgment after reviewing the investigation results." Governor Jeong said, "Investigations are currently underway by the authorities. Based on the investigation results, administrative decisions on which parts the FSS should inspect must be made first."

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