[2024 National Audit] Financial Services Commission Audit Focuses on 'Household Loans, Real Estate PF, Financial Accidents'

National Assembly Political Affairs Committee to Hold Financial Services Commission Audit on the 10th
Management Status of Household Loans That Have Surged This Year
Questions Expected on Poor PF Restructuring and Timef Incident Follow-up Measures
Woori Financial Unfair Loan Case, Chairman Lim Jong-ryong to Attend... Focus on Explanation and Clarification

On the 7th, when the 2024 regular National Assembly inspection began, the National Assembly was busy with public officials from the inspected agencies preparing for the inspection. Photo by Kim Hyun-min kimhyun81@

On the 10th, the National Assembly's Political Affairs Committee is scheduled to conduct a government audit targeting the Financial Services Commission, the control tower of financial policy. Sharp criticisms are expected to arise surrounding various policies such as household loan management, real estate project financing (PF), and support for the Tmon and Wemakeprice (Timemep) incident. In particular, attention is focused on how Lim Jong-ryong, chairman of Woori Financial Group, who has been experiencing turmoil due to the improper loan incident involving relatives of former chairman Sohn Tae-seung, will appear at the audit and what explanations and clarifications he will provide.

According to the financial sector on the 8th, the Political Affairs Committee will conduct a government audit on the 10th targeting the Financial Services Commission, Korea Development Bank, and Industrial Bank of Korea. Kim Byung-hwan, chairman of the Financial Services Commission, Kang Seok-hoon, chairman of Korea Development Bank, and Kim Sung-tae, president of Industrial Bank of Korea, are expected to attend as witnesses affiliated with the institutions. On the 17th, the Financial Supervisory Service and the Korea Inclusive Finance Agency will undergo government audits at the National Assembly.

The Political Affairs Committee is expected to focus primarily on examining the management status of the rapidly increasing household loans this year during the Financial Services Commission audit. Although the financial authorities began implementing the second phase of the stress Debt Service Ratio (DSR) regulation from September and continued to pressure the financial sector, the increasing trend has somewhat slowed, but many argue that the policy goals have not been fully achieved.

As of the end of September, the outstanding household loans of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?amounted to 730.9671 trillion won, an increase of 5.6029 trillion won from 725.3642 trillion won at the end of August. Although the loan increase was less than the 9.6259 trillion won recorded in August, the burden of management has increased due to a rise of more than 38.5 trillion won since the beginning of the year.

In particular, after the Financial Services Commission postponed the implementation of the second phase of the stress DSR from July to September, the increase in household loans accelerated further. During this process, conflicting messages between Lee Bok-hyun, governor of the Financial Supervisory Service, who sparked controversy over 'government intervention,' and the Financial Services Commission added confusion to the market, which is expected to be a key issue during the audit. At the end of August, Governor Lee criticized banks for raising loan interest rates to suppress household loan demand and suggested that intervention by the Financial Supervisory Service was inevitable. Following the controversy over this statement, on the 6th of last month, Chairman Kim expressed that it is preferable to manage household loans through the banks' autonomous credit screening.

Policies such as the smooth landing of real estate PF and support for small business owners are also major issues. The financial authorities have completed evaluations of distressed PF projects based on data submitted by the financial sector and on-site guidance, and have begun full-scale restructuring this month. According to the handling plans submitted by the financial sector, they plan to induce auctions and sales to minimize the impact of the 24 trillion won worth of distressed PF on the financial market. Additionally, discussions are expected to continue on support measures for small business owners and vulnerable groups, which include full debt forgiveness for small debts and an additional 11 trillion won investment in support for small business owners.

The Tmon and Wemakeprice (Timemep) incident, which caused damages amounting to 1.3 trillion won to small business owners and consumers due to unprecedented settlement delays, is also an unavoidable issue for the financial authorities. The Financial Supervisory Service had recognized financial soundness problems by signing a management improvement agreement with Timemep in 2022 but faced criticism for not taking separate measures due to institutional limitations. Both companies have entered rehabilitation procedures following court decisions, and Koo Young-bae, chairman of Qoo10 Group, Ryu Kwang-jin, CEO of Tmon, and Ryu Hwa-hyun, CEO of Wemakeprice, have all been summoned for investigations.

Frequent Financial Sector Incidents... Eyes on Woori Financial Group Chairman Lim Jong-ryong

[Image source=Yonhap News]

With Lim Jong-ryong, chairman of Woori Financial Group, scheduled to appear at the government audit due to the improper loan incident involving relatives of former chairman Sohn Tae-seung, there is intense interest in whether additional facts will be confirmed. Above all, focused questioning is expected regarding why the internal audit at Woori Bank recognized the improper loans but did not promptly report them to the financial authorities.

Currently, Kim, the brother-in-law of former chairman Sohn, has been arrested and indicted on charges of receiving improper loans amounting to 35 billion won solely from Woori Bank. Im, a former head of a division at Woori Bank who assisted him, has also been consecutively detained on suspicion of evidence tampering and flight risk. Furthermore, it has been confirmed that other relatives of former chairman Sohn received loans from other affiliates such as Woori Investment & Securities (formerly Woori Finance), Woori Savings Bank, Woori Card, and Woori Financial Capital, raising the possibility of an expanded scope of investigation.

Lee Seok-yong, president of NH Nonghyup Bank, is also not free from financial incidents confirmed this year. NH Nonghyup Bank has suffered embarrassment due to four financial incidents this year alone, including improper loans amounting to 10.9 billion won through false sales contracts and employee embezzlement of about 11.7 billion won. Additionally, KB Financial Group Chairman Yang Jong-hee has been selected as a witness for the Ministry of Employment and Labor's audit by the National Assembly's Environment and Labor Committee, while Kang Ho-dong, chairman of Nonghyup Federation, and Lee Seok-jun, chairman of NH Nonghyup Financial Group, will appear as institutional witnesses at the National Assembly's Agriculture, Forestry, Livestock, Food, and Fisheries Committee audit.

Meanwhile, the National Assembly's Political Affairs Committee will conduct government audits on the Korea Deposit Insurance Corporation, Korea Asset Management Corporation, Korea Housing Finance Corporation, and Korea Credit Guarantee Fund on the 14th and 15th, and on the 17th, audits will be held for the Financial Supervisory Service and the Korea Inclusive Finance Agency. On the 24th, they plan to hold a comprehensive audit by summoning Financial Services Commission Chairman Kim Byung-hwan and Financial Supervisory Service Governor Lee Bok-hyun together.