FSS: "Banks Must Ease Burden on Vulnerable Borrowers... Without Undermining Autonomy" (Comprehensive)

Lee Bok-hyun, Financial Supervisory Service Chief, Holds First Meeting with Heads of 17 Banks
Foreign Currency Liquidity is Crucial... "Refrain from Unnecessary Loans"
Asked About Strengthening CEO Sanctions, He Says "Next Time"
Requests Voluntary Cooperation from Banks in Low-Interest Debt Refinancing Project

Lee Bok-hyun, Governor of the Financial Supervisory Service, is holding a meeting with bank presidents at the Bankers' Hall in Jung-gu, Seoul on the 20th. / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Song Seung-seop] On the 20th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), held his first meeting with domestic bank CEOs and urged them to strengthen risk management and internal controls. He also emphasized the role of private banks in low-interest refinancing programs and alleviating the burden on vulnerable borrowers.

At the meeting held at the Bankers Association building in Jung-gu, Seoul, attended by CEOs of 17 banks, Governor Lee stated in his opening remarks, “Loan loss provisions are calculated based on default rate data, but due to fiscal and financial support measures in response to COVID-19, there is a high possibility that recent default rates are underestimated. Please cooperate to ensure that a sufficiently sized provision is accumulated by reflecting a more conservative future outlook in the default rates, taking into account potential credit risks.”

Governor Lee particularly emphasized foreign currency liquidity. He said, “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 manage the foreign currency funding structure stably through proactive procurement of medium- to long-term foreign currency funds, and refrain from unnecessary loans such as resident foreign currency loans at overseas branches.”

Regarding the surge in household debt during the COVID-19 response, he added, “We must manage the increase in loans steadily through the establishment of DSR (Debt Service Ratio) regulations to prevent it from materializing into systemic risk.”

On the recent series of financial accidents in the financial sector, he said, “Once the ongoing inspections are completed, we plan to prepare and implement improvement measures for the Financial Services Commission’s internal control system,” and added, “We should expand self-inspections of internal controls and, if necessary, consider strengthening internal control organizations and capabilities.”

After the meeting, when asked by reporters whether it was appropriate to discuss internal controls with CEOs who might face sanctions, he responded, “I believe it is necessary to exchange opinions with management as well.” He explained, “Inspections are being conducted mainly on major financial accidents, so investigations are necessary. This is to check the causes of the financial accidents and how to prevent them in the future.”

However, when asked if there were plans to strengthen sanctions against holding company chairpersons and bank presidents, he avoided a direct answer, saying, “Since I discussed internal control systems with the bank presidents, I will review and take the opportunity to speak after the inspection.”

"Measures to convert low-interest loans and slow the pace of interest rate hikes should be devised"

Lee Bok-hyun, Governor of the Financial Supervisory Service, is taking a commemorative photo before holding a meeting with bank presidents at the Bankers' Hall in Jung-gu, Seoul on the 20th. Photo by Moon Ho-nam munonam@

There was also a call to enhance pre-management of vulnerable borrowers and improve the rationality and transparency of interest rate operations. Governor Lee stated, “We are promoting a program to convert high-interest loans to low-interest loans, but the scale is inevitably limited. Banks themselves should consider measures to convert borrowers at risk of delinquency due to sudden interest rate hikes to other low-interest loans or to ease the scope and speed of interest rate adjustments.”

He also proposed, “Especially for vulnerable borrowers such as low-credit, multiple debtors, and high DSR borrowers, close monitoring of changes in debt repayment capacity is necessary. Programs providing proactive debt counseling and tailored support should be further expanded.”

Regarding concerns that the interest rate spread between deposits and loans widens during periods of rising interest rates, he said, “It is necessary to calculate and operate interest rates based on more rational and transparent standards and procedures. We are working on improving the deposit-loan interest rate calculation system and disclosure, and once the final plan is confirmed, please prepare thoroughly to implement it effectively.”

In response to criticism that the FSS’s demands might contradict the emphasis on autonomy for private banks, Lee Joon-soo, Deputy Director in charge of banks at the FSS, firmly stated, “I do not see it that way.” He explained, “For banks to sustain growth, they must proceed while carefully considering the situation of the public, especially borrowers. It is desirable for banks to develop in the mid- to long-term rather than pursuing short-term profits.”

Regarding criticism that if private banks lower their additional interest rates or eventually raise deposit rates according to the financial authorities’ stance, it would be market intervention, he rebutted, “I do not think so. Banks are reflecting the sentiments and concerns of the general public and making decisions on their own.”

When asked if the current interest rate level was considered high, he said, “The pace of interest rate hikes is fast,” but added, “Since interest rates are operated comprehensively considering banks’ basic credit loss costs, it is difficult to say uniformly whether they are high or low.”

Regarding future executive personnel schedules, Governor Lee directly stated, “Due to the multiple complex crisis situations, there are no plans for large-scale personnel changes immediately, and I have not even reviewed it.”

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