[Exclusive] Lee Chang-yong, Governor of the Bank of Korea, Holds First Private Meeting with Securities and Real Estate Trust CEOs

Lecture for CEOs of Domestic Securities and Asset Management Firms
'PF Crisis Theory' Emerges Again in May Following April
Thorough Financial Risk Management Expected to Be Urged

Lee Chang-yong, Governor of the Bank of Korea, will give a lecture on the overall domestic capital market to the CEOs of domestic securities firms, asset management companies, and real estate trust companies on the 29th of this month. Attention is focused on what message Governor Lee will deliver to the financial investment industry, which is closely watching the timing of interest rate cuts amid issues such as real estate project financing (PF) defaults and losses from overseas real estate investments. If the recovery of the real estate market and construction industry is slower than market expectations, PF site defaults could also impact the real economy, so it is expected that he will urge strengthening risk management and improving loss-handling capabilities.

Lee Chang-yong, Governor of the Bank of Korea, is delivering a keynote speech at the '2nd Korea CEO Forum' held on the 1st at the Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

According to the financial investment industry on the 12th, Governor Lee will give a lecture at a private breakfast seminar scheduled from 7:30 a.m. to 9 a.m. on the 29th at the 63 Building in Yeouido, Seoul. Named the 'CEO Seminar,' this meeting will be attended by 150 CEOs and association heads from domestic securities firms, asset management companies, and real estate trust companies. This is the first time this year that Governor Lee has given a lecture at a gathering where CEOs from securities firms and asset management companies have all appeared.

This seminar will provide an explanation of the overall financial market and serve as a networking opportunity for CEOs of member companies of the Korea Financial Investment Association. Most CEOs of major domestic securities firms will attend, including Kim Mi-seop and Choi Chang-hoon, Vice Chairmen of Mirae Asset Securities; Oh Ik-geun, President of Daishin Securities; Yoon Byung-woon, President of NH Investment & Securities; Jang Won-jae, President of Meritz Securities; and Park Jong-moon, President of Samsung Securities.

The lecture topic has not yet been finalized, but it is expected to address issues related to real estate PF and overseas real estate. The PF handling issue emerged as the biggest challenge for the Korean economy after the April 10 general election. The overall PF delinquency rate across the financial sector has more than doubled in one year, and the handling of non-performing loans is urgent. To prevent a wave of bankruptcies in the construction industry and the spread of defaults to the financial sector, selective measures are expected to identify viable projects and eliminate non-performing ones. This is the reason why crisis rumors surfaced in April and again in May.

Moreover, with the rise in U.S. Treasury yields causing Korean government bond yields to rise in tandem, there are concerns about ripple effects on market interest rates. In this situation, stagnant interest rates could act as a negative factor for real estate-related issues. Considering all circumstances, it is anticipated that Governor Lee will deliver a message emphasizing the need to prepare for potential financial instability that could be triggered during the ongoing tightening policy.

Earlier this year, Governor Lee attended a financial sector New Year's gathering and stated, "We must thoroughly prepare for the possibility of financial instability that could be triggered during the ongoing tightening policy."

Last month on the 28th, the Bank of Korea released a financial stability report, drawing a line under the April PF crisis rumors by stating that even if PF defaults triggered in the non-bank sector occur, the financial system can sufficiently absorb them. However, if the recovery of the real estate market is delayed in the future, PF site defaults could negatively affect the real economy, making it difficult to lower vigilance.

According to financial authorities, the PF delinquency rate across all financial sectors, including banks, securities firms, insurance companies, and savings banks, was 2.70% at the end of last year, up 1.19% from the previous year. By sector, securities firms had the highest delinquency rate at 13.73%.

As funds that should serve as financing channels for securities firms became tied up in non-performing loans, a vicious cycle emerged where funds did not circulate in the market. The reason the Financial Supervisory Service met with representatives from nine comprehensive financial investment companies, including Mirae Asset Securities and Korea Investment & Securities, on the 10th was to gather industry opinions and prepare measures to normalize real estate PF, such as activating short sales. The Financial Supervisory Service is expected to announce a PF normalization plan externally within this month.