Urgent Need for NPL Sales, But Concerns Over Lack of Federation President as Regulatory 'Bridge'
Expansion to Third-Party Institutions Like Loan Companies Needed
"A Control Tower Is Essential to Convey Industry's Long-Standing Requests to Authorities"
As the election for the head of the Korea Federation of Savings Banks (KFSB) progresses slowly, concerns are growing within the industry that the federation may struggle to effectively serve as a bridge between financial authorities and the industry. Despite the federation's continuous requests to the authorities to address long-standing industry issues such as expanding the channels for selling non-performing loans (NPLs), these appeals have been largely ignored. There are concerns that without a federation president, the momentum for policy initiatives will weaken. If a new president is not elected by June 16, when the current 19th president Oh Hwa-kyung's term expires, Oh will continue to serve in an interim capacity, but there are worries that this temporary leadership may hinder effective communication with the authorities.
On the 6th, according to the savings bank industry, the federation held a meeting at 3 p.m. at its headquarters in Mapo-gu, Seoul, with team leaders responsible for sales from nine major savings banks (SBI, OK, Korea Investment, Welcome, Aequan, Daol, Pepper, Shinhan, and DB). It is reported that 6 to 7 people attended the meeting. A federation official stated, "This is an annual regular meeting, and the topic is to gather various opinions from the industry regarding regulatory easing."
During the meeting, the industry requested the federation to advocate for easing restrictions on third-party sales of non-performing loans, relaxing mandatory loan ratios within business areas, and applying differentiated loan-to-deposit ratio regulations based on bank asset size. Since this was a team leader-level meeting rather than a 'C-level' meeting and an annual event, the atmosphere was not heavy.
However, some raised doubts about whether the federation could effectively convey industry requests to the authorities, given the sluggish progress of the federation president election. In particular, the sale of non-performing loans is an urgent issue, and due to the aftermath of the 2011 savings bank crisis, the regulations on mutual finance and capital companies are stricter than those on other secondary financial sectors, making the federation's role significant.
Among policies related to non-performing loan sales, easing sales restrictions is generally considered more urgent than relaxing merger and acquisition (M&A) regulations. Since M&A regulatory easing is a policy that yields synergy only when the construction market recovers, the prevailing opinion is that expanding channels for selling non-performing loans is more pressing.
Earlier, in January last year, the Financial Services Commission allowed savings banks to sell delinquent loans from individual business owners not only to the Korea Asset Management Corporation (KAMCO) but also to private securitization companies (specialized NPL investors) to support the strengthening of savings banks' soundness. However, savings banks still complain of significant difficulties, such as markedly weak negotiating power during sales. They argue that expanding sales channels to 'third parties' beyond KAMCO and securitization companies, such as loan companies that buy assets at high prices, would enhance their operational capacity and soundness. Moreover, they say that savings banks could contribute to expanding non-performing loan sales as desired by financial authorities. The meeting emphasized the need for the federation to more actively convey these industry voices to the authorities.
A savings bank official in Seoul said, "Savings banks are trading assets at prices lower than market value (fair price) during the sale of non-performing loans," adding, "Since transactions of project financing (PF) distressed sites are not as active as the authorities require, the industry's request is to increase the channels for selling savings banks' non-performing loans, and support from the federation is necessary."
It has been confirmed that the authorities are not currently discussing expanding the sales targets for savings banks' delinquent loans from individual business owners beyond KAMCO and securitization companies. A Financial Services Commission official said, "Since allowing securitization companies as buyers of savings banks' delinquent loans from individual business owners in January last year, there has been no discussion about further expanding sales channels."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
