Lee Seok-yong, President of NongHyup Bank, "PF Insolvency Causes Chain Reaction Across Financial Sector... Contributing to Market Stabilization"

[Bank President New Year Interview]
Concerns Over Rapid Deterioration of Private Debt Amid Real Estate and Corporate Household Debt Adjustment
Focus on Strengthening Credit Soundness Management Capabilities

Lee Seok-yong, President of NH Nonghyup Bank, said regarding this year's real estate project financing (PF) market, "So far, the impact of some PF project defaults has varied depending on the risk management capabilities of individual financial companies, but going forward, it will have a chain reaction effect on all financial institutions," adding, "We will contribute to market stabilization in line with government policy directions."

In a recent interview with Asia Economy, President Lee stated, "With the workout (corporate financial restructuring) of Taeyoung Construction, a top-tier construction company, the expected restructuring of the construction industry this year is likely to become visible."

Regarding the domestic economy this year, President Lee first noted that uncertainty looms, and risk factors persist in the economic and financial sectors such as real estate and household debt. He pointed out, "There is a concern that private debt could rapidly deteriorate during adjustments in the real estate market and corporate and household debt, so the risks to the financial market and financial companies are expected to be very high," adding, "I also believe the real economy will not be as active as expected."

Contrary to growing market expectations for interest rate cuts, he also mentioned that it is difficult to predict the direction of interest rates. President Lee said, "Although the U.S. Federal Reserve (Fed) slightly lowered the year-end benchmark interest rate forecast at the Federal Open Market Committee (FOMC), it also mentioned inflation exceeding targets, making it difficult to anticipate future interest rate policies," adding, "Therefore, it is hard to predict deposit and loan interest rates, and more importantly, it is a crucial time for proactive measures such as detailed asset and liability management to minimize impacts regardless of the interest rate environment."

Regarding the real estate market, President Lee said, "Given the still high uncertainties such as strengthened regulations due to rising household debt, a slowdown in housing transactions, and real estate PF defaults, the household loan market will see strengthened deleveraging movements," adding, "Banks will also establish strategies focusing on stable management rather than growth in lending."

Accordingly, NH Nonghyup Bank plans to strengthen soundness management this year while focusing on capacity building. President Lee stated, "(Since the management environment is uncertain) we will continuously expand loss absorption capacity and set aside an appropriate scale of loan loss provisions and reserves related to credit soundness," adding, "Regarding corporate loans, we will continuously manage soundness through early detection of credit risks and timely implementation of bad debt management plans."

Additionally, President Lee has set four major tasks for capacity building this year: ▲Enhancing core business competitiveness ▲Building a digital financial ecosystem ▲Creating future growth revenue structures ▲Establishing a sustainable growth foundation. He said, "Last year, the overall profitability of the financial industry was high due to a large interest margin between deposits and loans, but conditions are expected to become relatively difficult going forward," adding, "Therefore, continuous innovation and execution in the financial sector, including digital innovation and integration of environmental, social, and governance (ESG) businesses, are necessary at this time."