Notice of Amendment to Expand Credit Exposure Limits for Overseas Subsidiaries of Financial Holding Companies

On the 31st, the Financial Services Commission announced that it will prepare a revision of the "Regulations on the Supervision of Financial Holding Companies" and conduct a notice of regulatory changes to improve the credit extension limit regulations for overseas local subsidiaries under financial holding companies, in accordance with the "Regulatory Improvement Plan to Activate Overseas Expansion of Financial Companies" announced last July.

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 the 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. The 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@

Under the current law, to maintain the soundness of financial holding companies and prevent risk transfer among subsidiaries, the credit extension limit between subsidiaries of bank holding companies is set within a certain percentage of their capital. The credit extension limit to other individual subsidiaries is 10% of capital, and the total credit extension to all other subsidiaries is within 20% of capital.

However, the industry opinion is that overseas local subsidiaries under financial holding companies face difficulties in raising funds from domestic affiliates due to these regulations. In the early stages of overseas expansion, local fundraising is also challenging due to insufficient creditworthiness and lack of collateral.

Accordingly, through this revision, the authorities decided to support the funding difficulties of overseas local subsidiaries under bank holding companies by granting an additional credit extension limit (within 10 percentage points) between subsidiaries for a certain period. The certain period is within three years from the date the foreign institution is incorporated into the financial holding company to which the subsidiary belongs.

This revision will be announced for regulatory change from today until the 10th of next month, and after procedures such as approval by the Financial Services Commission, it is scheduled to be implemented on January 1 of next year.