Strengthening Large Loan Limit Management in Mutual Finance... Preventing Fund Concentration

Financial authorities are strengthening the management of large loan limits in mutual finance sectors such as Nonghyup, Shinhyup, and Suhyup this year to prevent excessive concentration of funds. This is aimed at securing the soundness of mutual finance sectors amid recent concerns over real estate project financing (PF) defaults causing instability in the financial market.

On the 11th, the Financial Supervisory Service (FSS) announced in advance that it will extend the administrative guidance on managing large loan limits in mutual finance sectors for one year starting from May.

Since July 2021, the FSS has regulated that mutual finance sectors cannot handle additional large loans if the total amount of large loans exceeds five times their equity capital or 25% of their total assets.

With the extension of this administrative guidance, mutual finance sectors must gradually reduce the amount of large loans exceeding the limit by the end of next year. They are required to clear 60% of the excess large loans by the end of this year and 100% by the end of next year.

Meanwhile, as real estate-related risks increase, financial authorities have also moved to strengthen the loss absorption capacity of mutual finance sectors. The Financial Services Commission is considering measures such as raising the loan loss provision rate for real estate and construction loans from the current 100% to 130%.

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