Banks to Increase Loan Loss Provisions by 876 Billion Won... "Proactive Measure Against Uncertainty"

[Asia Economy Reporter Song Seung-seop] Domestic banks will accumulate more than 800 billion won additionally. This comes as financial authorities have ordered an expansion of loan loss provisions in preparation for uncertainties such as the resurgence of COVID-19 and the Ukraine crisis.

On the 8th, the Financial Supervisory Service recommended that domestic banks additionally set aside a total of 876 billion won in loan loss provisions. Banks will add provisions for loans with extended maturities or repayment deferrals deemed to have high credit risk, as well as loans to COVID-19 vulnerable industries. Each bank will calculate the additional provision amount considering loan balances and portfolio characteristics. The plan will be finalized through upcoming board meetings and shareholder meetings.

The net increase in loan loss reserves and provisions of domestic banks is expected to reach 37.6 trillion won as of the end of last year. This is an increase of 1.8 trillion won from 35.8 trillion won at the end of 2020.

The Financial Supervisory Service maintains its stance to strengthen loss absorption capacity. A FSS official explained, “We have been encouraging additional loan loss provisions and capital expansion considering the pandemic situation and domestic and international economic conditions. However, with the recent resurgence of COVID-19 and the Ukraine crisis, uncertainties in the domestic and international economy have increased, so we cannot be assured that the current level of loss absorption capacity is sufficient.”

He added, “It is necessary to take preemptive measures in preparation for the possibility of increased non-performing loans during the normalization process of various financial support measures for COVID-19 affected companies, such as extended loan maturities and repayment deferrals that have been re-extended.”

In addition, the FSS will check whether future outlook information applied in calculating loan loss provisions sufficiently reflects the COVID-19 situation and domestic and international financial and economic conditions. It will also promote the introduction of household sector countercyclical capital buffers to maintain sufficient capital to respond to unexpected losses.

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