Operation of Voluntary Agreement on PF Loans for Non-Bank and Mutual Finance... Easing of Credit Limits

Financial Supervisory Service Offers 'Incentives' for Compliance with Voluntary Agreement
Relaxation of Industry-Specific Credit Limit Compliance Obligations

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An autonomous agreement will be activated to normalize real estate project financing (PF) and joint loan projects within the specialized credit finance (yeojeon-eop) sector and mutual finance sector. When the yeojeon-eop sector and mutual finance sector provide loan support for PF projects, credit limit regulations will be temporarily relaxed, and asset soundness classification criteria will be applied flexibly.

The Financial Supervisory Service (FSS) announced on the 21st, "An autonomous agreement containing support measures for the normalization of projects solely managed by the yeojeon-eop and mutual finance sectors will be fully activated in April," adding, "We plan to create an environment for restructuring PF and joint loan projects by preparing incentive measures to ensure the smooth operation of the autonomous agreement."

Typically, joint loans related to real estate development involve participation from the same mutual associations, and many small-scale single projects are composed of lending groups including savings banks, yeojeon-eop, and mutual finance. Reflecting these characteristics, the FSS plans to first activate individual autonomous agreements to support real estate PF and joint loan projects. Separately, projects involving multiple financial sectors will be supported through the 'All Financial Sector PF Lending Group Operation Agreement.' In the case of Saemaeul Geumgo, an autonomous agreement was also prepared in consultation with the FSS and is scheduled to be implemented in April.

This autonomous agreement includes the selection and operation methods for eligible projects and the support methods for the projects. First, an autonomous consultative body will be formed between creditor yeojeon companies or creditor associations to initiate joint management procedures for the projects and to deliberate and decide on suspension, termination, and support measures.

As for project support methods, debt adjustment will be pursued under the principle of loss sharing among stakeholders. Adjustment methods include maturity extension, principal reduction, interest reduction, interest rate cuts, debt assumption, and conversion to equity. New funding support will, in principle, be borne according to the existing participation ratio of creditor yeojeon companies or creditor associations, and incentives will be provided to ensure that new funds are repaid with the highest priority.

The FSS will provide various incentives related to the implementation of the autonomous agreement to ensure smooth operation on the ground. First, the obligation to comply with credit limits by industry will be temporarily relaxed for six months. Until now, specialized credit finance companies could handle real estate PF exposure within 30% of their credit assets. Mutual finance associations could handle real estate and construction joint loans within one-third of the total joint loan balance of the association, with a combined limit of half.

Asset soundness classification criteria will also be applied flexibly. For loans related to debt restructuring and new funding support projects that have undergone autonomous agreement resolutions and meet conditions such as faithful contract performance, upward adjustments will be possible.

The FSS has also prepared an exemption clause for employees regarding the implementation of the autonomous agreement. Even if loans for projects that underwent debt restructuring and new funding support through autonomous agreement resolutions become non-performing, no separate sanctions will be imposed unless there is intentional or gross negligence.

An FSS official stated, "Following the implementation of the savings bank autonomous agreement in March, this autonomous agreement lays the foundation for proactively managing real estate loan risks across all small and medium-sized community financial sectors," adding, "We expect it to help normalize projects and facilitate a soft landing of the real estate market."

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