Experts Express "Inappropriate Timing" Concerns Over FSC Chairman's Remarks on 'Corporate Restructuring' (Comprehensive)

Yoon Seok-heon, Governor of the Financial Supervisory Service (Source=Yonhap News)

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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" in 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 the 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 pointed out to be somewhat distant from the active support measures of the financial authorities. With comprehensive corporate support measures underway, including 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, there is concern that 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 Sejong University’s Department of Business Administration criticized Governor Yoon’s remarks as "somewhat puzzling" and said "the timing is very wrong." Professor Kim 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 Hansung University’s Department of Economics 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 Yonsei University’s Department of Economics emphasized, "Currently, companies are holding on through financial support, but after a certain point, support cannot continue, 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 commercial bank said, "There may be controversy over the timing, but fundamentally, it is a problem worth considering," expressing concern that "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 become endangered."

The FSS explained Governor Yoon’s remarks as "merely mentioning the necessity of corporate restructuring in a theoretical sense."

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