Lee Bok-hyun, Financial Supervisory Service Chief: "Bank's Own Fund Policy Loans Increased by 180%... Caution Needed on Soundness"

Reminders from the Executive Meeting on the 14th
"Events such as the U.S. CPI, Monetary Policy Committee, and Trump’s Inauguration... Financial Stability Must Be Ensured"

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), raised concerns about the concentration of policy fund loans in the banking sector. At an executive meeting held on the 14th, Governor Lee stated, "Policy fund loans (Didimdol and Buteimmok loans) using domestic banks' own resources are increasing sharply."

Governor Lee emphasized, "Considering the opportunity costs for banks, this could negatively impact profitability," and added, "Special attention must be paid to the risk of asset concentration and deterioration of soundness." According to the FSS, the scale of policy fund loans using banks' own resources increased by 180.8%, from 24.7 trillion won at the end of 2022 to 69.5 trillion won at the end of June last year.

Governor Lee warned that such concentration could undermine banks' profitability. The structure involves banks executing loans with their own resources, after which funds provide interest subsidies within a certain limit. However, the opportunity costs incurred in this process could adversely affect banks' profitability.

Regarding domestic and international market instability factors, he said, "Following the release of U.S. employment data last week that greatly exceeded expectations, expectations for interest rate cuts have sharply weakened, leading to increased volatility due to exchange rate and market interest rate instability. Given important upcoming events that could impact the market, such as the U.S. Consumer Price Index (CPI) release on the 15th, the Monetary Policy Committee meeting on the 16th, and the inauguration of U.S. President Trump on the 20th, it is necessary to maintain heightened vigilance and ensure financial stability."

He also stated, "There are concerns about confusion in handling non-face-to-face mortgage loan products related to the introduction of the future registration system currently being promoted by the courts," and added, "We will closely communicate with the banking sector and related institutions to prevent financial consumer damage."