[Q&A] Chairman Kim Byunghwan "Establishing Investment Fund for Advanced Industries like Semiconductors and Defense"

Base Rate Cuts Should Be Reflected in Loan Interest Rates
Announcement on Establishing KDB Fund at Industrial Competitiveness Ministers' Meeting in Q1
Jeonse Loan Guarantees to Be Lowered to 90%

Financial Services Commission Chairman Kim Byung-hwan is speaking at a press briefing on recent issues held at the Government Seoul Office in Jongno-gu, Seoul, on the 22nd. Photo by Jo Yong-jun

On the 22nd, Kim Byung-hwan, Chairman of the Financial Services Commission, stated, "We are currently consulting with relevant ministries on establishing a separate fund within the Korea Development Bank to strengthen the competitiveness of advanced industries."

Chairman Kim held a monthly press briefing at the Government Complex Seoul that morning and said, "Since the inauguration of the Trump administration, there have been many concerns and worries about industrial competitiveness," expressing this view.

Below is a Q&A session with Chairman Kim.

- There are opinions that Lee Jae-myung, leader of the Democratic Party of Korea, summoned bank presidents and effectively pressured them to lower the additional interest rates. Do you think political intervention in interest rates is justified?

▲ From what I gathered from the meeting, it was a session to listen to many opinions. Both the government and political circles should be cautious about intervening not only in additional interest rates but in any interest rates. However, despite the base interest rate being cut twice last year, there is clearly a recent aspect where banks have not fully reflected the speed and extent of the rate cuts. When the base rate goes down, it should basically be reflected in loan interest rates. There is, however, a time lag. Therefore, I understand that some banks are considering measures to lower additional interest rates this year. We will monitor and review this direction.

- I am curious whether the internet-only banks can be consistently promoted.

▲ Since last month, we have repeatedly expressed a firm commitment that "we will proceed without wavering" and "according to schedule." The Financial Services Commission will accept applications by the end of March and proceed as planned.

- I am curious about the scale of the Korea Development Bank’s fund to strengthen advanced industry competitiveness. You mentioned it would be announced in the first quarter; could you specify the timing?

▲ We have a rough idea of which industries the fund will target. However, inter-ministerial consultations are necessary. There are advanced key industries defined by law. These industries will basically be included, and which additional industries to include will be discussed. The fund size also needs to be negotiated. Since the fund will be raised through government-guaranteed bonds, to set the guarantee limit, we need to understand actual market demand. We will announce this at the 'Meeting of Ministers for Strengthening Industrial Competitiveness' within the first quarter.

- Regarding household debt, the 2025 business plan announcement mentioned 'policy finance supply targets under consultation.' Could you provide more details?

▲ Regarding policy finance supply targets for household debt, the Financial Services Commission is consulting with the banking sector. It is principle that the banks handle this themselves. Also, since consultations with the Ministry of Land, Infrastructure and Transport’s fund are required, the final stage is underway.

- Last year, policy loans such as Didimdol loans were mentioned as difficulties in managing household loans. There are talks about supplying 50 trillion won similarly to last year; do you agree with this scale? Also, the Financial Supervisory Service chief expressed concerns that policy loans funded by banks’ own resources might negatively affect bank profitability. Do you share this concern?

▲ Policy loans have a purpose. They aim to provide opportunities and support for relatively low-income or non-homeowners to purchase homes at low interest rates. We must respect this policy objective. However, from the Financial Services Commission’s perspective of managing overall household debt, the speed at which policy loans increase should be managed depending on the situation. The Financial Services Commission and the Ministry of Land, Infrastructure and Transport share this view. Therefore, this means that the entire household debt should be managed both from the perspective of soundness and from the perspective of bank profitability. You can understand it as such.

- Last year, penalties were decided for banks that exceeded the annual household loan targets. Could you provide details?

▲ It is basically up to each bank to plan how much annual household loans they will handle and how much net increase they will allow, depending on how they want to manage their asset portfolio this year. Banks prepare their business plans according to overall risk management.

The financial authorities’ macroprudential stance is that management should be within the range of potential growth rates. This is discussed with banks. If a bank exceeds the agreed plan from this perspective, it should reduce its growth rate the following year. This is called a penalty, but it is not really a penalty.

- To what extent will the guarantee ratio for jeonse loans in the metropolitan area be lowered?

▲ Regarding metropolitan area jeonse guarantees, it was announced in the business report that the 100% guarantee for jeonse loans will be lowered to 90%. This has the effect of curbing household debt but is basically a 'normalization.' A 100% guarantee for jeonse loans means banks do not conduct any screening at all. As for how much more it will be lowered in the metropolitan area, we need to observe market conditions. Our plan is to finalize details when the DSR (Debt Service Ratio) is implemented on July 1.

- Regarding Woori Financial Group’s acquisition of an insurance company, could the review period exceed 60 days? If the Financial Supervisory Service’s management evaluation results fall below grade 3, would conditional approval be considered?

▲ The review of Woori Financial Group’s insurance company acquisition will proceed according to procedures. The management evaluation grade results are still pending, so we must follow procedures. The review period is 60 days, but it may vary depending on circumstances. The Financial Services Commission does not prejudge or conduct the review arbitrarily.

- You mentioned that regional banks are given some leeway with household loan growth rates slightly above the potential growth rate. Does this mean real estate investment in the metropolitan area is possible? Are there plans to restrict household loans to regional real estate?

▲ Regional banks need policy consideration reflecting the local real estate market situation. If household loan funds from regional banks flow into the metropolitan area, it defeats the purpose. It is difficult to speak specifically about this, but we will consult with banks to sufficiently control the concerns.

- There is strong opposition to the proposed measures on indemnity insurance contracts. Minister Cho Kyu-hong of the Ministry of Health and Welfare mentioned in a parliamentary standing committee that the Financial Services Commission announced the measures unilaterally. What is the future direction of discussions?

▲ The Financial Services Commission, responsible for indemnity insurance, and the Ministry of Health and Welfare, responsible for non-reimbursable medical expenses, took sufficient time to consult and announce the measures. Basically, the Financial Services Commission approached this with the intention to fundamentally reconsider indemnity insurance contracts, unlike past contracts. The aim is to create fundamental measures to improve negative impacts on the medical system, such as excessive treatment, which have been raised regarding indemnity insurance.

If we had considered the insurers’ profits, we would not have made it so complicated. We developed the measures in consultation with the Ministry of Health and Welfare, addressing structural problems of the indemnity insurance system and its distorted effects on the medical system. We will maintain the announced measures in principle, but some detailed adjustments may be made.

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