Financial Services Commission Strengthens Management of Multiple Debts and Real Estate Loans in Savings Banks

[Asia Economy Reporter Song Hwajeong] The Financial Services Commission (FSC) has decided to strengthen the soundness management of savings banks starting next year by requiring them to additionally set aside provisions for loans to multiple debtors.

According to the amendment to the Mutual Savings Banks Business Supervision Regulations announced by the FSC on the 27th, savings banks will apply differentiated additional provision rates of 30% and 50% based on the number of financial institutions used, considering that the default rate increases with the number of financial institutions used. For borrowers using 5 to 6 financial institutions, the provision rate will be 130%, and for those using 7 or more, it will be 150%.

Other financial sectors have already established regulations for additional provisions for multiple debtors, requiring higher provisions for loans to such borrowers. In the case of mutual finance, a 130% provision is set aside for loans to individuals holding balances with 5 or more financial institutions, and credit card companies also set aside 130% provisions for borrowers holding long-term card loan balances with two or more credit card companies.

Currently, the credit exposure limits for real estate-related loans are applied by industry and sector, such as 20% for real estate project financing (PF), 30% for construction, and 30% for real estate businesses. Additionally, real estate-related loans must be managed so that they do not exceed 50% of the total credit exposure. Regarding this, special purpose companies (SPCs) involved in real estate PF loans have typically been classified under financial businesses, but going forward, if the actual loan is related to real estate, it will be included in real estate-related loans.

The FSC plans to implement the amendment early next year after undergoing reviews by the Regulatory Reform Committee and the Ministry of Government Legislation in November and December. The FSC explained, "Although the soundness of savings banks is currently considered favorable based on indicators, the need for soundness management is increasing due to the characteristics of the sector, which has a high proportion of vulnerable borrowers, in the event of external shocks such as interest rate hikes and real estate price declines. Therefore, we are proactively promoting the amendment of the Mutual Savings Banks Business Supervision Regulations to strengthen soundness management."

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