Financial Supervisory Service and Korea Deposit Insurance Corporation Conduct Joint Inspection of Savings Banks' PF Loans in First Half of Year... "Review Regardless of Scale"

Inspection Focus Shifts from Large Savings Banks to Thematic Checks on Vulnerable Sectors
Annual Cases Expected to Increase from 5-8... "Enhancing Soundness and Expanding Liquidity"

The Financial Supervisory Service (FSS) announced on the 3rd that it will conduct a joint inspection of project financing (PF) loans at savings banks in the first half of the year together with the Korea Deposit Insurance Corporation (KDIC). The joint inspection will be expanded from focusing mainly on large savings banks with assets over 2 trillion won to include thematic joint inspections of vulnerable sectors regardless of size.

The two institutions will examine the overall internal control systems related to the credit handling process, including the review, approval, and post-management of PF loans at savings banks. They will closely check whether the banks have capital increase plans and liquidity response capabilities sufficient to normalize themselves in case of a crisis. Over the past five years, the two institutions have inspected 5 to 8 large or risk-vulnerable savings banks annually. They inspected 5 banks in 2020, 8 in 2021, 7 in 2022, 8 in 2023, and 7 last year.

The FSS plans to swiftly sanction any illegal or unfair acts by savings banks discovered during the joint inspection. It will disseminate issues such as causes of PF loan defaults, cases of weak internal controls, and delays in bad debt resolution to the savings bank industry to encourage prompt improvements. Institutional improvements are also planned. The two institutions will activate information sharing related to risk-vulnerable savings banks and cooperate to ensure proactive supervision and management.

The FSS stated, "Through joint inspections, we expect to accelerate the resolution of bad PF loans and improve the PF loan handling process, thereby enhancing the soundness of savings banks. We will strengthen the lending capacity of savings banks and supply liquidity to new PF projects to promote a virtuous cycle of funds in the real estate PF market."

Meanwhile, on the 28th of last month, the FSS disclosed 174 PF projects (exposure of 3.2 trillion won) for sale on the PF information disclosure platform. Including projects disclosed in January, the total is 369 projects worth 6.3 trillion won. This represents 83% of 443 projects, excluding those that have been resolved or are undergoing legal procedures such as loss of benefit of term or lawsuits, among projects with concerns about business feasibility evaluation as of the end of September last year (14.7 trillion won). The remaining project information will be disclosed this month. On-site inspections will be conducted this month for projects with delayed sales to encourage transactions.

The FSS expects that if PF projects are smoothly resolved through the platform, a cumulative 7.4 trillion won will be resolved by the end of this month.