[Kim Byunghwan 3 Months]③ 'Policy Keywords' Follow Management > Debt > Stability Order

Unending Noise Surrounding Kim Byunghwan's '4 Core Policies'
Ongoing Controversy Over Household Loan Management Solutions
Real Estate PF Soft Landing and 2nd Financial Sector Soundness, Year-End as Turning Point
Ensuring Effectiveness in Support for Small Businesses and Vulnerable Groups Remains a Challenge

[Image source=Yonhap News]

The first three months following Kim Byung-hwan's appointment as Chairman of the Financial Services Commission were a period focused on restoring its status as the control tower of financial policy. He demonstrated leadership and swift responses to unexpected situations such as the TMON and WEMAKEPRICE incidents and the improper loans at Woori Financial Group. Moving forward, he is expected to concentrate more on resolving accumulated issues related to the four major tasks he emphasized even before his appointment: ▲household loan management ▲smooth landing of real estate project financing (PF) ▲support for small business owners and vulnerable groups ▲soundness of the secondary financial sector.

Asia Economy conducted a comprehensive review of Chairman Kim Byung-hwan’s official statements, including his inaugural speech and press releases, finding that he mentioned ‘management’ 47 times, ‘debt’ 42 times, and ‘stability’ 34 times. Since household loans, real estate PF, and the soundness of the secondary financial sector fall under financial stability policies, these topics were repeatedly emphasized. Related terms such as ‘risk,’ ‘real estate,’ and ‘soundness’ were mentioned 24, 23, and 17 times respectively. The term ‘ordinary people,’ related to support for small business owners and vulnerable groups, was mentioned 27 times. He also showed significant interest in financial innovation (28 times) and development (13 times).

Ongoing Controversy Over ‘Household Loan Management’

Since his nomination, Chairman Kim has repeatedly stated that “loans will only be available up to the borrower’s repayment capacity” whenever concerns about household loan management grew. The goal is to manage household debt growth within the nominal growth rate and focus on household debt management centered on the Debt Service Ratio (DSR).

However, there have been continuous disputes over detailed policies, highlighting the need for a more sophisticated financial policy control tower role. The planned implementation of the second phase of the stress DSR, originally scheduled for July, was abruptly postponed to September, easing the burden of the rapidly increasing household loan balance, which surged by nearly 15 trillion won in just two months.

There is also the challenge of resolving recent confusion surrounding the reduction and timing of the Didimdol Loan limit in coordination with related ministries. The government initially planned to reduce the Didimdol Loan limit, a policy loan for home purchases, but postponed implementation due to backlash from genuine demanders. However, within days, it announced a zigzag approach, deciding to reduce the limit with a grace period only in the metropolitan area.

In response, Chairman Kim stated at the National Assembly audit that these situations were due to decisions by the Ministry of Land, Infrastructure and Transport. However, financial sector insiders advise that “Ultimately, the Financial Services Commission, which leads the household debt inspection meetings and other consultative bodies, must coordinate detailed policies and demonstrate policy stability and consistency to the market.”

Smooth Landing of Real Estate PF and Soundness of Secondary Financial Sector: Year-End is Crucial

The smooth landing of real estate PF and the management of the secondary financial sector’s soundness are challenges that must be addressed simultaneously. Since September, the first evaluation results and implementation plans for distressed PF projects have been used to proceed with light auction procedures. However, it remains uncertain whether the liquidation process for about 10% of the approximately 230 trillion won PF projects classified as cautionary or distressed will proceed smoothly. A financial sector official involved in real estate PF remarked, “The liquidation of distressed projects is not as smooth as the government expects,” adding, “The government, project operators, and creditor financial institutions are all caught in a situation of conflicting interests and divergent goals.”

Securing the soundness of the secondary financial sector linked to real estate PF is also an urgent task. As of the first half of this year, the delinquency rate of savings banks exceeded 8%, and that of mutual finance institutions surpassed 4%. At the end of 2022, the delinquency rates were 3.41% for savings banks and 1.52% for mutual finance institutions. Accordingly, the Financial Services Commission plans to continuously strengthen monitoring, raise land-secured loan reserves to the level of real estate PF loans, and guide the gradual increase of loan loss reserve standards for real estate and construction loans to 130% of the current level.

‘Stable’ Support for Small Business Owners and Vulnerable Groups... Ensuring Effectiveness is the Challenge

Financial support for small business owners and vulnerable groups is one of the policies Chairman Kim has paid special attention to. He extended the support period to December 2026 and advanced the early implementation of improvements to the New Start Fund system, which includes special guarantees for medium- and low-credit borrowers and bridge guarantees, from the end of September to September 12. Notably, two days before the comprehensive National Assembly audit, on the 22nd, he visited ‘Anyang Jungang Market’ in Anyang City, Gyeonggi Province, to promote the New Start Fund and hold a meeting with market merchants.

With prolonged high interest rates and inflation exacerbating difficulties for ordinary people and vulnerable groups and reducing their repayment capacity, accelerating policy support measures is necessary. Following the announcement of tailored financial support measures, Chairman Kim began a combined financial-employment-welfare support plan on the 25th. Going forward, to secure funding, active communication with financial companies is needed to promote debt adjustment under the recently enacted Personal Debtor Protection Act and the implementation of the Lower Limit on Bank Contributions under the Microfinance Act.

Meanwhile, there is also the task of establishing approval criteria for internet-only banks and promoting the preliminary approval process for the fourth internet-only bank within this year. The policy goal is to encourage new entrants in the banking sector and stimulate competition. Other policy tasks attracting market attention include launching exchange-traded funds (ETFs) linked to the Value-Up Index and building a computerized short-selling system.