Financial Services Commission Considers Strengthening Mutual Finance Loan Loss Provisions to 130% for 'Real Estate Risk'

'2023 1st Mutual Finance Policy Council Meeting' Held on the 29th

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where financial authorities decided to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. Financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

As real estate-related risks in the mutual finance sector have recently increased, financial authorities have raised the loan loss provision ratio to enhance the loss absorption capacity of the mutual finance sector.

On the 29th, the Financial Services Commission held the '2023 1st Mutual Finance Policy Council' and announced this decision while reviewing the status of real estate loans in the mutual finance sector. The FSC is considering raising the loan loss provision ratio for real estate and construction loans from the current 100% to 130%.

Regarding concerns over potential defaults in real estate project finance (PF), data on PF project sites across the entire mutual finance sector, including Saemaeul Geumgo, will be requested on a monthly basis. In the event of project site defaults, related information will also be shared promptly. Each central association of the mutual finance sector plans to strengthen monitoring of financially vulnerable Geumgo (cooperatives). Additionally, they will actively participate in financial sector creditor group agreements and their own creditor group agreements.

As of the end of last year, the delinquency rate in the mutual finance sector, including credit unions, was 1.52%. Saemaeul Geumgo recorded 3.59%, savings banks 3.4%, card companies 1.2%, and banks 0.25%.

During the meeting, the introduction of sector-specific loan limit regulations for Saemaeul Geumgo was also discussed. This system is already in place in other mutual finance sectors. It limits loans to real estate and construction businesses among loans to individual business owners and corporations to no more than 30% each of total loans, with their combined total not exceeding 50% of total loans. Saemaeul Geumgo also plans to soon introduce regulations to maintain a liquidity ratio of 100% or higher.