Financial Services Commission and Financial Supervisory Service Dismiss Discord Controversy
A meeting between Lee Bok-hyun, Governor of the Financial Supervisory Service, and bank presidents was held on the 10th at the Bankers' Hall in Myeong-dong, Seoul. Governor Lee is seen talking with Lee Seok-yong, President of NH Nonghyup Bank, before the meeting started. Photo by Heo Young-han younghan@
Lee Bok-hyun, Governor of the Financial Supervisory Service, recently took a step back and apologized for the inconsistent messages regarding household loans from financial authorities, saying, "I apologize for causing confusion to the public and those working at bank counters." Regarding the previous day’s statement by Park Sang-woo, Minister of Land, Infrastructure and Transport, who said that the target for policy loans would not be reduced, Lee said, "We are communicating with the Ministry of Land, Infrastructure and Transport," and added, "If the interest rate gap between policy funds and private funds is too large, I understand that the Ministry of Land, Infrastructure and Transport will consider adjusting it based on the trend."
After a meeting with bank presidents on the 10th, Governor Lee told reporters, "There is no disagreement between the Financial Services Commission and the Financial Supervisory Service that the management stance on household loans should be maintained through banks' autonomous credit screening." He dismissed concerns about discord among authorities that had arisen. He continued, "Although it was not intentional, I apologize for causing inconvenience and difficulties to the public, banks, and those working at bank counters by not delivering detailed messages regarding the management of rapidly increasing household loans."
However, Governor Lee said, "Operating a portfolio with a concentration on specific assets riding on expectations of rapid (real estate) price increases is not appropriate risk management from the banks’ perspective, and it also poses significant risks to consumers or customers due to excessive interest and principal repayment burdens." He added, "Since a loan cliff must be avoided, I requested (the bank presidents) to manage loans systematically and gradually on a monthly schedule or similar basis."
He also softened his stance on the earlier mention of reducing next year’s total debt service ratio (DSR) limits if banks exceed their annual management plan targets for household loans. Governor Lee said, "We need to observe the household loan trends in October and the upcoming November, and I will take time before commenting on the specifics of the next DSR policy or any additional positions regarding the management of high-risk asset loans in the banking sector."
Governor Lee’s remarks, which toned down the momentum, appear to be mindful of the recent controversy over 'government-controlled finance.' Previously, banks responded to the financial authorities’ orders to strengthen household debt management by raising loan interest rates, but the increase in household debt did not ease. Last month, Governor Lee pointed out that the rise in loan interest rates was not what the authorities wanted, leading financial companies to start regulating loans themselves beyond just raising rates. Banks consecutively introduced measures such as suspending mortgage loans for one-homeowners, abolishing grace periods, and restricting conditional jeonse (long-term rental) loans. When signs of a balloon effect appeared with loan demand shifting to secondary financial institutions, insurance companies also blocked mortgage loans for homeowners.
However, as criticisms arose that innocent actual demand borrowers were suffering from these policies, Governor Lee held an 'On-site Meeting with Household Loan Actual Demand Borrowers and Experts' on the 4th, drawing a clear line by saying, "The blocking of loans to homeowners by some financial companies was not in consensus with the authorities." On that day, as he repeatedly emphasized, "We will ensure there are no restrictions on loans for actual demand borrowers," Woori Bank activated a dedicated team for screening actual demand borrowers and introduced exceptions for actual demand borrowers in the rules prohibiting loans to homeowners, aligning with the governor’s remarks. This led to continued criticism that these measures were actions of 'government-controlled finance.'
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