Financial Supervisory Service Chief: "Savings Banks Must Not Excessively Expand Assets... Management Plans Need Reassessment"

8th Financial Supervisory Service Chief - Savings Banks Meeting
"Beware of Illusions from Seemingly Favorable Indicators"

Lee Bok-hyun, Governor of the Financial Supervisory Service. / Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Song Seung-seop] Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), expressed concerns that the asset expansion in the savings bank industry is at an excessive level. He also issued instructions to re-examine management plans, emphasizing the importance of risk management.

On the 8th, Governor Lee held a meeting with industry CEOs at the Savings Bank Central Association building in Mapo-gu, Seoul, stating, “I urge you to refrain from excessive asset growth.” This is due to the recent downward trend in the savings banks’ Basel International Settlement (BIS) ratio. The industry’s BIS ratio fell from 14.8% at the end of 2019 to 13.1% as of the end of March.

Governor Lee explained, “The main cause of the BIS ratio decline is understood to be the rapid increase in total assets by an average of 20% annually over the past three years,” adding, “It is not desirable to expand assets excessively to the point of damaging soundness, and there is a need to re-examine management plans.” He further stated, “Please also consider capital expansion plans reflecting the results of self-conducted stress tests assuming complex crisis situations and the impact of strengthened loan loss provisions for limit loans.”

He continued, “We must be cautious of the illusion that soundness indicators appear favorable due to fiscal and financial support, and it is necessary to strengthen loss absorption capacity in preparation for crises,” urging, “Please carefully review the risk levels and expected losses by loan assets, and for loans where loss expansion is anticipated, establish strengthened self-reserve standards and accumulate sufficient loan loss provisions.”

FSS Governor: "If Trust and Morality Collapse, the Company's Existence Is Shaken"

Criticism was also raised regarding the business structure of the savings bank industry. Governor Lee pointed out, “Specific deposits such as retirement pensions have increased significantly, and maturities are concentrated at the end and beginning of the year,” warning, “Although liquidity conditions are at a favorable level, temporary liquidity shortages or surpluses may occur if the economic situation changes rapidly. Deposit products and maturity structures need to be diversified.”

Regarding the high proportion of real estate project financing (PF) loans, he called for active management. He said, “Savings banks’ PF loans and other real estate loans account for about half of total corporate loans and are expanding in scale,” emphasizing, “It is necessary to re-examine industry-specific limits and risk levels to alleviate loan concentration.” The FSS also disclosed plans to inspect whether appropriate loan loss provisions are being accumulated for all savings banks’ PF loans.

On recent embezzlement incidents and illegal or unsound business practices occurring in savings banks, he stressed, “Please thoroughly review repayment ability and borrowing purposes when handling loans, and closely monitor whether funds are being misused after loan disbursement,” emphasizing, “Keep in mind that if trust and morality in finance are damaged, the very existence of financial companies can be shaken.”

He also requested, “Please re-examine debt adjustment programs by vulnerable borrower types such as those at risk of delinquency, short-term and long-term delinquents, and ensure that support is expanded.”

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