Kim Byung-hwan, Financial Services Commission Chairman, Requests Financial Groups to Manage Household Debt

Final Schedule of Financial Sector Relay Meeting
"Limitations with Government Regulations Alone, Voluntary Efforts by Financial Sector Needed" Urged
Reiterated Willingness to Timely Implement Prepared Measures According to Household Loan Trends
Trust Damaged by Various Financial Accidents... Emphasized "Efforts to Restore Trust Including Strengthening Internal Controls"
Ongoing Environmental Changes Such as Demographic Shifts... "Must Play a Role in Financial Industry Development"

"There may be limitations to the government's household loan regulations alone, and meticulous and voluntary management efforts from the financial sector are necessary. Please pay special attention to achieving the household loan targets for the remaining three months of this year."

On the 30th, Kim Byung-hwan, Chairman of the Financial Services Commission, met with the chairpersons of eight financial holding companies?KB, Shinhan, Hana, Woori, NongHyup, DGB, BNK, JB?and the chairman of the Korea Federation of Banks at the Korea Federation of Banks in Myeong-dong, Jung-gu, Seoul, as the final schedule of the financial sector relay meeting. He emphasized, "To improve a financial system that relies excessively on debt, efforts from financial authorities are important, but it is also crucial to establish strategies at the financial holding company level, encompassing banks, securities, and insurance, on how to structure portfolios such as loans and equity investments."

He continued, "Considering that 60% of the total household debt is handled by subsidiaries of financial holding companies, the role of financial holding companies is very important," adding, "Please establish household debt management goals with a sense of responsibility at the holding company level to ensure the downward stabilization of the household debt-to-GDP ratio continues next year."

From the financial authorities' perspective, under the management framework centered on the Debt Service Ratio (DSR), they announced that prepared measures will be promptly and decisively implemented according to the trend of household debt increase. Chairman Kim said, "Household debt has recently started to increase again, and given the challenging conditions such as the interest rate transition phase and the upward trend, we will boldly implement the prepared measures," adding, "On a broad scale, we will establish a more stable management system so that the household debt growth rate can be managed within the range of GDP growth rate."

Given that trust in the financial sector has been damaged due to various financial accidents such as allegations of improper loans involving relatives of former Woori Financial Group Chairman Sohn Tae-seung, embezzlement, and incomplete sales, he ordered strengthening internal controls to restore trust. Since financial holding companies have significant influence on the market and the public in terms of role and scale, he urged that fair and transparent management and business practices be ensured, keeping in mind market evaluations and public perspectives. Since the Financial Holding Companies Act was enacted in 2000, a total of 10 financial holding companies are currently operating, and through continuous growth, the asset size of financial holding companies accounts for 45% of the entire financial sector.

Chairman Kim said, "Please take responsibility at the holding company level to prevent financial accidents through strengthened internal controls and actively participate in pilot operations to ensure that the accountability structure is stably established," adding, "Criticism of excessive interest income in the financial sector is also significant, so please continue your interest and efforts for coexistence to meet the public's expectations for the social responsibility of the financial sector."

Furthermore, he requested that the role as a control tower be strengthened as unprecedented massive environmental changes continue, such as demographic shifts, climate change, and technological innovation. He also expressed the intention to review and actively improve necessary institutional and supervisory matters in response to environmental changes.

He stated, "To prepare our economy for the future and to enable our financial industry to take a step forward, financial holding companies must seek creative strategies and solutions," especially mentioning, "Please prepare strategies to create synergy within financial groups and to expand financial territories such as overseas expansion."

Meanwhile, the financial holding company chairpersons attending the meeting recognized that the recent repeated financial accidents are serious issues that shake the foundation of organizations and greatly undermine customer trust. They stated that they are striving to build a systematic internal control system at the financial group level by learning from past incidents.

The chairpersons responded that establishing an internal control culture within the group is important, and to this end, management is leading efforts to change the organizational culture. They said, "We will do our best to ensure that the new internal control system can be established, including actively participating in pilot operations of the accountability structure."

They added, "We will actively manage risk factors in our financial market at the financial holding company level, including household debt, debt of small business owners and self-employed individuals, real estate project financing (PF), and the soundness of the secondary financial sector," and said, "We will also seek creative and proactive measures that the financial sector can support to respond to demographic changes such as low birth rates."