FSS Warns of This Year's Risk as 'Corona Support Cliff Effect'..."Continued Loan Regulations"

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[Asia Economy Reporter Wondara] The Financial Supervisory Service (FSS) has identified "smooth landing of COVID-19 financial support" as a key task for this year. The "extension of COVID-19 loan maturities," which was postponed twice last year in September and this year in March, is now under consideration for one more extension. However, if it ends within this year, there are concerns that the "accumulated debt" will burst all at once. Consequently, a reduction in household loans, including "debt investment (debt-fueled investment)," is expected to be inevitable.

In its 2021 business plan announced on the 16th, the FSS pointed to the "cliff effect caused by the end of financial support" as a major risk factor. The FSS stated, "Due to the prolonged COVID-19 pandemic, borrowers' debt repayment capacity has weakened, raising concerns that latent insolvencies may surface once financial support measures normalize." It also noted, "If interest rates rise during the economic recovery process, the number of bankruptcies among marginal companies and households may increase."

As a countermeasure against the cliff effect, the FSS announced it will continue loan regulations. These include monitoring delinquency rates, strengthening the Debt Service Ratio (DSR), setting targets for household loan growth rates, and enhancing credit screening. Risk management for financial companies is also a key task. Banks will be advised to refrain from dividends and share buybacks, and liquidity management in both Korean won and foreign currencies will be strengthened. Enhanced capital adequacy ratios (BIS) will be introduced for mega investment banks (IBs). Simultaneously, measures to include low-credit borrowers in the formal financial system will be prepared. The FSS plans to encourage internet-only banks to activate loans for mid-interest and mid-to-low credit borrowers and to promote support through performance checks on the New Hope Loan program for vulnerable groups.

Monitoring of abnormal surges in stocks such as "presidential election stocks" and "political theme stocks" will be intensified, along with inspections of illegal activities by quasi-investment advisory businesses like "stock leading rooms." To this end, the FSS plans to establish on-site investigation and seizure rights for capital market special investigators. Regarding investigations and compensation for private funds that suffered large-scale losses, the FSS stated, "We will proceed without delay according to schedule." Dispute mediation will be prioritized based on estimated damage amounts, and for other private funds such as Optimus, dispute mediation will be conducted sequentially based on inspection and sanction results, with external legal advice. To prevent recurrence, focused inspections and examinations will be conducted on high-risk financial product mis-selling, unsound sales practices through non-face-to-face channels, and evasion of public offering regulations.

Additionally, to guarantee banking rights for the elderly and disabled, the FSS will apply penalty points for bank branch reductions during regional reinvestment evaluations and strengthen regular external announcements and management disclosures regarding branch closures and openings. It will also inspect the imposition of customer-borne costs such as card annual fees and domestic card overseas won-denominated payment amount confirmation service fees, and enhance inspections on the appropriateness of insurance premium and fee calculations and the operation of the no-claims discount system for indemnity insurance.

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