5-Day Meeting Between Financial Supervisory Service Chief and Credit Card Company CEOs
Lee Bok-hyun "Refrain from Aggressive Sales and High-Risk Asset Expansion"
On High-Interest Loans, "Rising Rates Raise Soundness Concerns"
[Asia Economy Reporter Song Seung-seop] Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), issued a warning to the credit card industry. He instructed to refrain from excessive sales activities aimed at short-term performance and expressed concerns about high-interest loans, which constitute the majority of credit finance companies, and the increasing real estate project financing (PF).
On the 5th, Governor Lee held a meeting with CEOs of 14 specialized credit finance companies at the Credit Finance Association in Jung-gu, Seoul, stating, “Please refrain from reckless business expansion or increasing high-risk assets to secure short-term profitability.” The meeting reviewed risk factors such as liquidity and soundness in the credit finance sector and discussed countermeasures.
Governor Lee acknowledged, “I understand that credit finance companies have been making self-help efforts to secure funds proactively,” but pointed out, “Since June this year, the spread on credit finance bonds has exceeded the peak (92bp) during the 2020 liquidity crisis, worsening funding conditions.” He urged, “Please conduct liquidity stress tests assuming conservative scenarios and re-examine emergency funding plans.”
On this day, Governor Lee even recalled the liquidity difficulties faced by the credit finance industry in 2020. At that time, as COVID-19 spread, new issuance of credit finance bonds was virtually halted, and some small and medium-sized credit finance companies experienced liquidity problems for several months. Although the soundness indicators of card companies are currently favorable, given the uncertain domestic and international economic conditions, the governor directly ordered thorough preparation for vulnerabilities.
Regarding high-interest loans by card companies, Governor Lee said, “Most household loans by credit finance companies are high-interest products used by vulnerable borrowers, raising concerns about deteriorating soundness if interest rates rise,” and requested, “Please pay attention to establishing lending practices that match the repayment capacity when handling high-interest loans for vulnerable borrowers.”
FSS Governor: "Credit Finance Companies Should Focus on Debt Repayment in Expanding PF"
He continued, “Since the third phase of the Debt Service Ratio (DSR) measures implemented from July, demand for products excluded from DSR may increase, so please pay closer attention to risk management,” and urged, “It is necessary to conservatively set future outlooks and sufficiently reserve loan loss provisions to enhance loss absorption capacity.”
He also mentioned corporate loans by credit finance companies concentrated in specific industries. Governor Lee said, “Over the past decade, credit finance companies have expanded corporate loans centered on real estate sectors such as PF due to the low-interest rate environment and intensified competition, recently exceeding their core business assets,” emphasizing, “Considering the significant concerns about falling real estate prices, credit screening should focus on debt repayment ability rather than collateral.”
He added, “The FSS will also inspect the actual status of corporate loans by conducting business evaluations for all PF loans,” and said, “Based on this, we will establish model guidelines for credit screening and post-management in cooperation with the industry.”
He requested attention to support vulnerable borrowers in preparation for the end of COVID-19 support programs, saying, “Please actively support borrowers temporarily facing financial difficulties to return to their livelihoods early by utilizing debt adjustment support programs such as pre-workout operated by credit finance companies.”
Regarding the current difficulties faced by the credit finance industry amid intensified competition with big tech companies, he promised, “We will support discovering new growth engines,” and pledged, “We will propose to the Financial Services Commission to expand the scope of concurrent and ancillary businesses and permissible tasks by credit finance sectors to include businesses related to finance.”
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