Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), stated on the 28th, “We are revising the evaluation criteria to strictly assess the viability of Project Financing (PF) projects,” adding, “Model cases of PF project restructuring are expected to emerge in the near future.”
Governor Lee made these remarks while attending a meeting with heads of research institutions held at a hotel in Yeouido, Seoul, saying, “We will not let our guard down for a moment regarding factors causing instability in the financial market, and will respond promptly if market instability occurs.”
He first diagnosed, “Externally, the timing of interest rate cuts is being delayed contrary to market expectations, and concerns over the slowdown of the Chinese economy persist, while geopolitical risks such as the U.S. presidential election and prolonged Middle East conflicts are also latent. Domestically, excessive household and corporate debt and the risk of real estate PF deterioration are likely to pose burdens on our economy and finance.”
He continued, “Financial funds excessively invested in real estate PF are becoming tied up, causing what is called a ‘money blockage’ (liquidity crunch). Based on the revision of the project viability evaluation criteria, financial companies will be required to build sufficient reserves for projects with significantly insufficient viability, and efforts will be made to induce liquidation and restructuring.”
Regarding household debt, Governor Lee also emphasized, “We will solidify the Debt Service Ratio (DSR) system to establish lending practices based on borrowers’ debt repayment capacity,” adding, “Through this, we will gradually stabilize and reduce the proportion of household loans relative to Gross Domestic Product (GDP), which had previously increased.”
Meanwhile, on this day, the FSS and heads of research institutions identified the financial industry trends that the financial sector should focus on this year as ▲ demographic changes ▲ climate finance ▲ cybersecurity ▲ artificial intelligence (AI) finance ▲ strengthening shareholder return policies.
Governor Lee stated, “We must actively embrace new trends that can change the foundation of the future financial industry and turn them into opportunities for innovation,” adding, “We are closely analyzing the social, economic, and financial industry impacts brought by demographic changes, and have established related research organizations to respond so that the current financial industry structure, centered on real estate and interest income, can be improved into an advanced country model.”
He said, “We are enhancing the competitiveness and recognition of K-finance by actively sharing Korea’s climate finance response know-how with supervisory authorities in Southeast Asia and others,” emphasizing, “We will strengthen financial companies’ capabilities to respond to cyber threats, create a safe environment for utilizing AI financial services, and also make efforts to activate shareholder returns to resolve the Korea discount.”
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