Fed's 'Big Cut'... Director Lee Bok-hyun "Maintain Household Loan Management Policy"

Financial Supervisory Service to Hold Financial Situation Review Meeting on the 19th

On the morning of the 19th, Lee Bok-hyun, Governor of the Financial Supervisory Service, held a meeting to firmly maintain the stable management stance of household loans and urged preparations to ensure that macroprudential management measures can be implemented promptly as needed according to the situation.

Governor Lee held a financial situation review meeting immediately after the Federal Open Market Committee (FOMC) decided to cut the policy interest rate by 50 basis points (1bp = 0.01 percentage points) that morning, mentioning that they will meticulously examine the effects of household debt management measures such as the second-stage stress DSR (Debt Service Ratio) and strengthened voluntary screening standards for banks.

He also urged to closely monitor the financial market and be prepared to respond swiftly during the upcoming monetary policy transition. He emphasized that looking at the past seven cases of U.S. interest rate cuts, there were four instances where the U.S. economy achieved a soft landing within a year, but sometimes it led to a recession (three times), causing increased volatility in the financial markets.

In the process of differentiation in monetary policies among countries, it is judged that volatility in international financial markets may increase due to differences between economic indicators and market expectations, and there is a possibility of rapid capital movement such as additional unwinding of the yen carry trade, so close monitoring and maintaining stable foreign exchange soundness are necessary.

He stressed that a second business feasibility evaluation for PF (Project Financing) sites will be strictly conducted by November, and thorough post-management will be carried out to prevent the deferral or concealment of non-performing PF loans. However, for projects that are normal or have recovered feasibility through liquidation or restructuring, active financial support from the financial sector will be encouraged. For some secondary financial institutions with concerns about asset quality deterioration such as rising delinquency rates, guidance will be provided for the disposal of non-performing assets and capital expansion, and for underperforming financial companies, soundness management will be strengthened through management evaluations and on-site inspections.

Furthermore, Governor Lee emphasized that at this point when the interest rate cutting cycle begins, for the Korean economy to take off, financial companies must be prepared to supply sufficient funds to productive sectors, and he called for focusing supervisory capabilities.