Financial Authorities to 'Gradually Raise' Allowance Standards for Multiple Debtors in Savings Banks

Announcement of Proposed Amendments to the 'Mutual Savings Bank Business Supervision Regulations' Until the 19th
Gradual Increase Planned Due to Contraction in Financial Supply for Ordinary People

The financial authorities announced on the 8th that they will conduct a public notice of the regulatory change regarding the amendment to the Mutual Savings Banks Supervision Regulations, which gradually applies the increased loan loss provision standards for multi-debtor household loans by savings banks, until the 19th.

The financial authorities plan to promote a phased increase in the loan loss provision standards for multi-debtor household loans to ensure that savings banks can smoothly perform their primary role of supplying financial services to the underprivileged and that financial supply to vulnerable groups such as multi-debtors is not excessively contracted.

Originally, the financial authorities intended to implement the amendment, which differentiates and raises the loan loss provision standards based on the number of financial institutions used by multi-debtors to enhance the loss absorption capacity of savings banks for multi-debtor household loans, starting from July this year, and to reflect it in the loan loss provisions from the end of September.

However, amid a significant contraction in the supply of financial services to the underprivileged due to increased loan loss provision burdens from strengthened risk management by savings banks and efforts to manage the soundness of project financing (PF) loans, the business environment for key customers of savings banks such as small business owners and self-employed individuals has worsened, increasing the need for stable funding support. Concerns have also been raised that the rapid contraction of financial supply to vulnerable groups could drive them to illegal private loans, leading to a shift in direction to slow down the pace.

With the phased increase in loan loss provision standards, after the amendment is implemented, savings banks must set aside 10% of loan loss provisions if a multi-debtor uses loans from 5 to 6 financial institutions, and 15% if they use loans from 7 or more financial institutions, until June next year. From July to December next year, the provision standards will increase to 20% and 30%, respectively. From 2026, the rates will be 30% and 50%, respectively.

The financial authorities plan to implement the amendment in September after completing procedures such as the Financial Services Commission’s resolution once the public notice period ends.