Yoon Seok-heon’s Remarks on 'Corporate Restructuring' Deemed Inappropriate by Experts Due to Timing

Yoon Seok-heon, Governor of the Financial Supervisory Service

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[Asia Economy Reporters Kim Hyo-jin and Song Seung-seop] Controversy is arising over the discord between Financial Supervisory Service (FSS) Governor Yoon Seok-heon's mention of 'proactive corporate restructuring' and government policy. This is because, in line with the government's stance to protect companies from the shock of the novel coronavirus disease (COVID-19) at all costs, large-scale support policies are being implemented centered on financial authorities. Experts also point out that considering the significance and influence of the head of financial supervision, the timing and content of the remarks are highly problematic.

According to the financial sector on the 8th, Governor Yoon expressed his view that "proactive corporate restructuring is absolutely necessary in preparation for the end of (COVID-19-related) financial support" during his congratulatory speech at the 'Diagnosis and Tasks of Corporate Sector Vulnerability' symposium hosted by the Capital Market Research Institute the day before. He emphasized the need to prepare for the cliff effect, where latent insolvency suddenly materializes. Governor Yoon argued, "Securing the golden time through early restructuring is the most important."

Governor Yoon particularly stated, "Financial restructuring centered on creditor banks has reached its limit," and urged, "We should no longer focus solely on short-term performance but strengthen the corporate selection function to establish a foundation for proactive restructuring, manage credit risk to prevent corporate sector risks from transferring to the financial sector, and maintain sufficient loss absorption capacity."

Such remarks by Governor Yoon have been criticized as somewhat distant from the financial authorities' active support measures. Amid comprehensive corporate support measures such as the tens of trillions of won scale Industrial Stabilization Fund, Primary Collateralized Bond Obligation (P-CBO) guarantees, various forms of loan supply, and deferment of SME loan repayments, his comments could inadvertently send unsettling signals to the market.

Financial Services Commission Chairman Eun Sung-soo has previously stated, "Timely financial support for companies affected by COVID-19 is of utmost importance," and "Just as in the event of a fire, efforts prioritize human rescue and fire suppression rather than conserving firefighting water, we are promoting proactive and bold financial support in response to the COVID-19 crisis."

Professor Kim Dae-jong of the Department of Business Administration at Sejong University criticized Governor Yoon's remarks as "somewhat puzzling" and said, "The timing is very wrong." He also pointed out, "Restructuring should ideally be carried out by companies through autonomous management and self-help efforts once the COVID-19 crisis is overcome." Professor Kim Sang-bong of the Department of Economics at Hansung University said, "Overall, it is not a situation to carry out restructuring," adding, "The issue of corporate debt ratios should be examined by industry."

Some voices suggest that consideration of the intent behind Governor Yoon's remarks is necessary. Professor Sung Tae-yoon of the Department of Economics at Yonsei University emphasized, "Currently, companies are holding on through financial support, but after a certain point, support may no longer be possible, which could become risky," and added, "The financial authorities should improve the system so that creditor banks can properly assess companies' situations and provide support accordingly."

An executive in corporate credit at a major commercial bank expressed concern, saying, "There may be controversy over the timing, but fundamentally, it is a problem worth considering," and warned, "If the latent insolvency accumulating beneath the surface suddenly bursts due to regulatory and sanction relaxations and various deferments, both creditor banks and companies could be endangered."

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