[Bank President New Year Interview]
Focused Management on Borrowers Expected to Default
Lee Seung-yeol, CEO of Hana Bank, stated regarding this year's corporate loan strategy, "Instead of indiscriminate quantitative expansion competition, we will strengthen screening to select high-quality borrowers," adding, "We will focus on managing by selecting potentially distressed borrowers through credit risk checks and corporate early warning systems based on various themes."
In a recent interview with Asia Economy, Lee said, "Given the ongoing unfavorable financial market environment, financial authorities have already introduced the special loan loss reserve requirement, and banks will continue efforts to enhance loss absorption capacity, such as additional provisioning for loan losses."
Regarding this year's economic outlook, he said, "This year is expected to see a growth rate of 2.1%, higher than last year, due to recovery in global trade and the IT sector, leading to increased exports and facility investments," while noting, "Risks from real estate project financing (PF) and sluggish construction investment could constrain growth."
On interest rate trends this year, he noted, "With the US Federal Reserve's rate hikes having paused, major countries are likely weighing the timing of rate cuts," adding, "Domestically, despite a gradual decline in inflation, inflation expectations remain high, and household debt burdens persist."
Accordingly, Lee believes that the Bank of Korea's base rate cuts will likely occur with a time lag. He stated, "Considering various domestic and international factors, I expect the Bank of Korea's rate cuts to follow the Fed's rate cuts."
Regarding the real estate market, Lee said, "This year, the real estate market is likely to show overall weakness due to sustained high interest rates, weakened household borrowing capacity, and lingering anxiety, which will dampen buying demand," but added, "Buying demand is concentrated in the Seoul metropolitan area, where preference for actual residence and investment is high, so prices in the metropolitan area are expected to remain stable, with some price increases possible in major areas like Seoul where there is abundant latent demand."
He also predicted a slowdown in the growth of household loans. He said, "Due to a weak rebound in the real estate market and the base effect of the special Bogeumjari loan, the increase in mortgage loans is expected to slow compared to this year, and demand for unsecured loans may not be strong," adding, "Household loans are projected to increase slightly compared to 2023."
Furthermore, Lee emphasized, "An increase in household principal and interest repayment burdens leads to reduced disposable income and consumption capacity, which can weaken economic momentum. Prolonged high interest rates may increase the number of marginal borrowers and deteriorate the soundness of financial institutions," stressing, "Since household debt can be a major risk to the Korean economy, gradual structural improvements should be pursued under close monitoring."
Regarding the so-called 'bank role theory,' which suggests that banks will inevitably act as firefighters if the real estate PF crisis, starting from Taeyoung Construction's workout (corporate financial restructuring), spreads mainly to the secondary financial sector, Lee expressed a negative view. He said, "Responsibility among financial sectors becomes unclear, and without fundamental solutions such as recovery in the pre-sale market, there could be adverse effects on banks' soundness, so careful consideration is necessary."
Based on this judgment, Hana Bank plans to focus on strengthening its fundamentals this year. Lee stated, "Above all, we plan to focus on the basics of banking and solidify our fundamentals. Along with corporate finance, we will continue to develop differentiated competitiveness in strong business areas such as asset management, foreign exchange, and the money market," adding, "We will secure firm crisis response capabilities amid ongoing domestic and international uncertainties, improve internal controls to a high standard, and fulfill our social responsibilities in finance."
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