Financial Authorities Strengthen Mutual Finance Sector's Loss Absorption Capacity... "Preparing for Deterioration in Loan Soundness"
[Asia Economy Reporter Sim Nayoung] The Financial Services Commission announced on the 21st that it will pursue measures to strengthen the loss absorption capacity of mutual finance sectors, including additional provisioning for loan loss reserves.
On this day, the Financial Services Commission made this decision through the first non-face-to-face video meeting of the 2022 Mutual Finance Policy Council. This was based on the judgment that countermeasures are necessary as loan repayment burdens increase due to rising interest rates, and loan soundness could deteriorate if the real estate market also declines.
Primarily, the council decided to promote the reflection of the 'loan loss reserve ratio' in the quantitative indicators of the management status evaluation of mutual finance cooperatives to encourage sufficient provisioning for loan loss reserves. In particular, it was decided to strengthen the provisioning standards for real estate, construction industries, and multiple debtors.
The internal control procedures will be prepared by the Central Association of Mutual Finance. The introduction of a rotating supervisory officer system will also be pursued.
Improvement measures to prevent financial accidents such as recent cash embezzlement were also discussed. The council decided to first establish a basis for mandatory appointment of standing auditors in the mutual finance sector, where the system is currently insufficient. Additionally, measures will be prepared to exclude chairpersons, cooperative heads, and their special related parties from standing auditors to strengthen independence.
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The Financial Services Commission will collect opinions from related ministries and financial sectors by next month. Afterwards, it plans to prepare specific improvement measures and initiate the process of revising related laws and regulations.
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