Lee Bok-hyun, Financial Supervisory Service Chief, "Will Conduct Full Survey on Real Estate PF in Credit Card Industry"

May 5 Meeting Between Financial Supervisory Service Chief and CEO of Credit Finance Industry
Real Estate and Construction Loans Increase from 14.6 to 35 Trillion in 3 Years
"Comprehensive Review of New Corporate Credit Management Measures"

On the 5th, Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering opening remarks at a meeting with industry CEOs at the Korea Federation of Credit Finance Associations in Jung-gu, Seoul. Photo by Financial Supervisory Service.

[Asia Economy Reporter Song Seung-seop] Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), announced a plan to conduct a full-scale investigation into real estate project financing (PF) loans in the credit finance industry.

On the 5th, after holding a meeting with industry CEOs at the Credit Finance Association in Jung-gu, Seoul, Governor Lee met with reporters and emphasized, “We will conduct a comprehensive inspection of real estate PF in the credit finance sector and assess risks by each project site.”

Governor Lee stated, “It is true that the credit finance industry has a high proportion of real estate in corporate loans related to real estate,” adding, “We plan to conduct a comprehensive review of management measures related to the execution of new corporate loans and will provide updates as the process progresses.”

The proportion of real estate and construction loans in the credit finance industry is steadily increasing. Over the past decade, due to a low-interest rate environment and intensified competition, corporate loans have expanded mainly in real estate sectors such as PF, and recently, the assets from core business have even been exceeded. Real estate and construction loans, which stood at 14.6 trillion KRW at the end of 2018, increased by 20.4 trillion KRW to 35 trillion KRW by the end of last year. The loan proportion also rose from 34.4% to approximately 48.3%, an increase of 13.9 percentage points.

In his opening remarks that day, Governor Lee said, “Considering the significant concerns about the decline in real estate prices, it is necessary to conduct credit screening focusing on the debtor’s repayment ability rather than collateral when handling loans, and to regularly check for changes in the borrower’s credit risk after loan issuance.” He urged, “Credit finance companies themselves should strengthen corporate loan screening and post-management and work hard to additionally reserve loan loss provisions in preparation for worsening market conditions.”

Signs of 'Abnormal Foreign Exchange Transactions' in Banking Sector... "Increasing Staff for Intensive Inspection"

When asked about the level of liquidity crunch risk faced by card companies, he replied, “Card companies do not have their own deposit functions, so they raise funds entirely through credit finance bonds,” adding, “The corporate bond market and the short-term bond market as a whole have recently been affected by financial market instability, so we are reviewing this comprehensively.” He also mentioned, “We are in close consultation with the Financial Services Commission.” However, regarding major industry issues such as card loan interest rate cuts or fee problems, he dismissed them by saying, “There have been no discussions.”

Regarding recent signs of abnormal foreign exchange transactions in the banking sector, Governor Lee said, “We have received reports on cases involving Woori Bank and Shinhan Bank, and reflecting concerns that similar transactions may exist, inspections are being conducted across all other banks.” He continued, “We are well aware that the media and the public are concerned about various issues associated with unusual foreign exchange transactions,” and added, “Immediately after identifying the incidents, we formed a separate foreign exchange inspection team of five members and dispatched them promptly, and have since increased the team to conduct intensive short-term inspections.”

On the intensifying competition with big tech companies in the industry, he explained, “(The credit finance industry) provided specific opinions,” and added, “Personally, I also believe that institutional improvements are necessary to ensure fair competition and transparency, and I plan to propose this to the nominee for the Financial Services Commission Chairman.”

Regarding the recent moves by banks to lower loan interest rates, he said, “We are paying attention to and closely monitoring the voluntary efforts to protect financial consumers during this period of rapid interest rate hikes,” but added, “It is cautious for us to express opinions on whether the level is appropriate or not.”