Financial Supervisory Service Strengthens Risk Checks to Prevent SVB Bankruptcy from Spreading Domestically

'2023 Banking Sector Financial Supervisory Service Briefing Session'

On the 17th, the Financial Supervisory Service (FSS) held the '2023 Banking Sector Financial Supervision Briefing' and announced directions including 'timely response to potential risks arising from complex crises,' 'early diagnosis and response to corporate credit risks,' 'strengthening banks' loss absorption capacity,' and 'expanding funding supply to vulnerable borrowers and real demanders.'

Kim Young-joo, Deputy Governor of the FSS, said in his opening remarks, "We will strengthen inspections of potential risk factors to prevent instability originating overseas, such as the recent bankruptcy case of Silicon Valley Bank (SVB) in the United States, from transferring into systemic risks in the domestic financial market." He added, "Even in the event of economic deterioration, we plan to induce the expansion of loss absorption capacity by introducing special loan loss reserves and improving the countercyclical capital buffer (CCyB) accumulation standards to ensure banks can smoothly perform their fund intermediation functions."

He also stated, "We will strengthen inspections of vulnerable sectors to prevent large-scale financial accidents like those last year and strictly respond to unfair and unsound practices that infringe on the rights and interests of financial consumers." Lastly, he mentioned, "As interest burdens increase due to rising interest rates, difficulties for households and businesses are growing, so it is necessary to expand win-win finance by banks. If the banking sector strengthens its social responsibility, such as supporting vulnerable groups, it will ultimately lead to improved bank reputation, expanded customer base, and contribute to bank growth."

The FSS said it will check the adequacy of risk management such as 'investment, liquidity, and credit risks' regarding potential risks in banks like economic slowdown and deterioration of debt repayment ability. Monitoring of high-risk operators related to real estate project financing (PF) will also be strengthened.

They established a principle to induce improvement through measures such as management warnings focusing on risk vulnerability factors. However, strict sanctions will be imposed on acts causing large-scale financial consumer damage or repeated violations.

Regarding the sharp rise in loan interest rates and the resulting worsening financial difficulties for companies and households, the FSS stated, "We will inspect for unfair and unsound business practices and violations of the Financial Consumer Protection Act." To strengthen responsible management of bank holding companies, they will check the adequacy of risk management and internal control systems at the holding company level. They will also examine the establishment and operation of governance and the appropriateness of executive performance-based compensation systems.