Financial Supervisory Service Urges Card and Capital Companies to Increase Crisis Preparedness Reserves

Online Meeting Held on Crisis Management Measures

[Asia Economy Reporter Yu Je-hoon] Financial authorities have urged credit specialized financial companies, such as card and capital companies, to additionally reserve provisions for losses, following the banking sector.

On the 26th, according to the financial sector, the Financial Supervisory Service (FSS) held a video conference this morning with risk management executives from 19 credit specialized financial companies (7 card companies, 12 capital companies) to discuss crisis management measures including the reservation of loan loss provisions.

At the meeting, the FSS encouraged credit specialized financial companies to additionally reserve loan loss provisions. With recent interest rate hikes and the authorities pushing to end COVID-19 financial support, there is a possibility of loan defaults among small business owners and self-employed individuals, so proactive preparation was requested. Previously, the FSS had also urged banks to additionally reserve loan loss provisions.

A financial authority official explained, "Since the early 2000s card crisis, the standards for reserving loan loss provisions have been strengthened, so we believe card companies have no major issues in their loss absorption capacity," but added, "However, with the end of COVID-19 financial support and normalization of monetary policy this year, we do not know what kind of crisis may arise, so the intention is to sufficiently prepare for future risk possibilities."

Risk management measures of each industry were also intensively discussed. Although the loan scale of credit specialized financial companies is not as large as banks, for card companies, multiple debtors are a risk factor, and for capital companies, real estate-related loans are identified as a risk factor. In particular, the capital industry, which has a large proportion of real estate-related loans, is likely to face difficulties if the market adjusts due to interest rate hikes.

An industry insider said, "Usually, loan loss provisions are reserved considering delinquency rates, but I understand the intention is to strengthen this in light of recent interest rate hikes and difficulties faced by self-employed individuals due to COVID-19."

Meanwhile, financial authorities have been urging financial companies since the beginning of the new year to manage risks by additionally reserving loan loss provisions in preparation for possible crises. This is due to concerns about the possibility of loan defaults centered on small business owners and self-employed individuals as financial normalization, including interest rate hikes and the end of COVID-19 financial support, accelerates. The authorities are seeking a soft landing plan in accordance with the principle of ending loan maturity extensions and repayment deferrals for small business owners and self-employed individuals affected by COVID-19 by the end of March.

Jung Eun-bo, Governor of the Financial Supervisory Service, recently stated, "If the real estate market adjusts due to interest rate hikes, the financial market may be negatively affected," and urged, "Financial companies should sufficiently reserve provisions for real estate-related assets, promptly evaluate investment losses, and enhance their loss absorption capacity."