Lee Bok-hyun, Financial Supervisory Service Chief, "Banks Must Also Devise Their Own Low-Interest Transition Loan Plans"

Financial Supervisory Service Chief Holds First Meeting with Domestic Bank Presidents
"Government Scale Limited for Low-Interest Loan Conversion"
Emphasizes Banks' Own Measures

Lee Bok-hyun, Governor of the Financial Supervisory Service

[Asia Economy Reporter Song Seung-seop] "It is necessary for banks themselves to consider measures such as converting loans to low-interest loans or easing the extent and speed of interest rate adjustments for borrowers who are at risk of delinquency due to a sharp increase in loan interest rates."

On the 20th, Lee Bok-hyun, Governor of the Financial Supervisory Service, held his first meeting with the heads of 17 domestic banks at the Bank Federation Hall in Jung-gu, Seoul, since his inauguration. He stated, "The government is promoting programs to convert loans to low-interest loans, but the scale of support is inevitably limited." This comes amid concerns that vulnerable borrowers may become insolvent due to the ongoing trend of base rate hikes, emphasizing the role of private banks.

This meeting was originally arranged amid multiple risk factors, including the U.S. Federal Reserve's 0.75 percentage point hike in the base rate, the Ukraine crisis, and supply chain disruptions.

Governor Lee emphasized, "Especially for vulnerable borrowers such as low-credit, multiple debtors, and high DSR borrowers, it is necessary to closely monitor changes in debt repayment ability and proactively provide debt counseling and customized support programs. We plan to strengthen existing support programs such as 'Credit Loan 119' in cooperation with the banking sector."

He continued, "For corporate borrowers, many companies are expected to face difficulties in debt repayment due to rising interest rates and raw material prices. It is important to accurately analyze and evaluate the situation of borrowing companies and actively provide funds for temporary liquidity difficulties." He added, "For structurally vulnerable companies, support should be provided to promote restructuring such as business transformation and reorganization."

Regarding the tendency for the interest rate spread between deposits and loans to widen during periods of rising interest rates, he warned, "Criticism of banks' excessive profit-seeking is increasing." Governor Lee stated, "Banks need to calculate and operate interest rates based on more rational and transparent standards and procedures. Currently, financial authorities are working with the banking sector to improve the deposit-loan interest rate calculation system and disclosure. Once the final plan is confirmed, thorough preparation is required to ensure effective implementation."

On domestic and external risks, he said, "Loan loss provisions are calculated based on default rate data, but due to fiscal and financial support in response to COVID-19, recent default rates may be underestimated. Please cooperate to ensure that a sufficiently sized provision is accumulated by reflecting a more conservative future outlook in the default rate, considering potential credit risks."

He particularly urged strict management of banks' foreign currency liquidity. "In the current situation where foreign currency borrowing conditions are deteriorating, resident foreign currency deposits are decreasing while corporate foreign currency loan demand is increasing. Please refrain from unnecessary loans such as resident foreign currency loans at overseas branches," he said.

Regarding recent financial accidents, he stated, "The financial industry’s lifeblood is customer trust, so greater vigilance is needed regarding financial accidents. The Financial Supervisory Service plans to prepare and implement improvements to internal control systems for preventing financial accidents in cooperation with the Financial Services Commission once the ongoing investigations are completed."

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