Emphasizing the Role of Savings Banks as Regional and Low-Income Financial Providers
Kim Byung-hwan, Chairman of the Financial Services Commission, stated on the 6th regarding mutual savings banks, "I once again urge thorough soundness management of real estate project financing (PF) loans."
Kim Byung-hwan, Chairman of the Financial Services Commission, is delivering opening remarks at the 'Chairman of the Financial Services Commission - Insurance Industry Meeting' held on the 28th at the Korea Insurance Development Institute in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@
On the morning of the same day, Chairman Kim held a meeting with CEOs of savings banks at the Government Seoul Office in Jongno-gu, Seoul, and said, "The savings bank sector is currently facing a serious situation involving issues of trust and concerns about management soundness in the market due to recent real estate PF problems."
This meeting, the sixth in Chairman Kim's series of financial sector discussions, was attended by Oh Hwa-kyung, Chairman of the Korea Federation of Savings Banks, CEOs of eight savings banks (Shinhan, Hana, SBI, Qoon, Yuanta, Korea Investment, Namyang, Moa), Professor Nam Jae-hyun of Kookmin University, and Park Ki-hong, Director of the KCB Research Institute.
On this day, Chairman Kim ordered thorough soundness management related to real estate PF. He said, "For projects rated as at risk of insolvency, please implement restructuring and liquidation plans prepared based on business feasibility evaluations, such as promptly resolving them through auctions or public sales within six months in principle." He added, "Please pay special attention to sufficient provisioning for potential losses and capital expansion that may arise during this process, and take the lead in restoring the virtuous cycle of funds and trust in the real estate PF market."
Chairman Kim particularly pointed out the recurrence of PF loan insolvency issues even after the global financial crisis, stating, "The savings bank industry must soberly diagnose the reality where crises recur due to concentration in specific assets such as real estate PF, so that periodic trust crises do not occur." He emphasized, "This is a serious situation requiring focused efforts on rapid crisis resolution and restoration of the fundamental role of savings banks."
Regarding this, the savings bank sector expressed, "We feel a sense of responsibility for the repeated savings bank crises caused by real estate PF following 2008," and added, "We will actively manage the soundness of savings banks so that it does not become a burden to the stability of our financial market."
During the meeting, measures to restore the role of savings banks in regional and low-income financial supply were also discussed. Chairman Kim said, "I understand that due to regional economic downturns and worsening repayment capacity of borrowers, the risk burden has increased, making it difficult to fulfill the role as providers of regional and low-income finance." He pointed out, "It is necessary to soberly consider whether these difficulties are the result of relying on the real estate market for easy choices rather than efforts for innovation to perform their fundamental roles."
He continued, "There are also evaluations that the industry is losing competitiveness because it has not adequately prepared conditions for performing its fundamental roles such as credit evaluation capabilities and has failed to effectively respond to rapid digital transformation and changes in the business environment." He emphasized, "It is most important for the industry itself to expand business capabilities and foundations such as credit evaluation, and especially urgent to strengthen competitiveness through active digital transformation efforts, expansion of non-face-to-face sales channels, improvement of cost structures, and diversification of sales channels."
In response, Chairman Oh said, "The Federation will take the lead in encouraging digital transformation of small and medium-sized savings banks and enhancing credit evaluation capabilities by actively discussing with member companies plans to develop financial product comparison platforms and customized credit evaluation systems for low- and medium-credit borrowers."
Meanwhile, Professor Nam and Director Park pointed out, "Rather than competing with banks, it is desirable for savings banks in our financial market to complement areas where banks alone cannot adequately supply products." They also noted, "Small and medium-sized companies need cost reduction through digital transformation and utilization of non-face-to-face sales channels." They further suggested expanding regional finance through cooperation with regional credit guarantee foundations for small business owners and linkage with local companies.
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