FSC Holds Meeting on Financial Response to Serious Accidents
Disadvantages in Interest Rates and Credit Limits for New and Existing Loans
Penalties in PF Support Priority
Comprehensive Measures to Be Announced in September Led by Ministry of Employment and Labor
Stronger Administrative Sanctions by Ministry of Employment and Labor and Ministry of Land
FSC to Reflect Credit Risk from Enhanced Sanctions
The financial authorities are preparing corporate loan guidelines that will require immediate reflection of credit risk for companies where serious accidents have occurred. Companies involved in fatal accidents will face disadvantages in new loan screenings, and when extending the maturity of existing loans, they may face higher interest rates or reduced credit limits. In addition, these factors will also be reflected in real estate project financing (PF) guarantee reviews.
On August 19, the Financial Services Commission (FSC) announced that it had discussed these measures at the "Financial Sector Response Meeting on Serious Accidents," held in the main conference room of the FSC with related organizations such as the Korea Federation of Banks. This is part of a comprehensive government-wide plan on serious accidents, led by the Ministry of Employment and Labor. The Ministry is currently reviewing measures to strengthen administrative sanctions, including amendments to the Occupational Safety and Health Act.
Kwon Daeyoung, Vice Chairman of the FSC, stated, "As administrative sanctions and penalties for serious accidents are strengthened, the credit and investment risk for companies where such incidents occur will increase. Therefore, the financial sector must proactively respond to these risks to manage soundness and protect investors."
He continued, "From this perspective, it is necessary for the financial sector to reflect serious accident risks in loan screenings in a timely, appropriate, and expanded manner. Companies should be required to disclose the occurrence of serious accidents immediately, so that investors can access the necessary information for decision-making. Related information should also be incorporated into ESG evaluations and stewardship codes."
Accordingly, the financial sector has decided to incorporate risks related to serious accidents into interest rates and credit limits during new loan screenings. For existing loans, interest rates may rise or credit limits may be reduced when extending maturities.
Conversely, companies with high evaluation ratings or those certified as safe workplaces will be offered preferential interest rates and credit limits. The financial sector also plans to support funding for facility improvements and safety consulting aimed at preventing serious accidents.
Policy finance institutions such as Korea Development Bank and Industrial Bank of Korea will be the first to implement these guidelines. They will proactively apply incentives and preventive support, while also reflecting disadvantages in loan screenings.
In particular, policy finance will include serious accident information in safety assessments during real estate PF guarantee reviews. Programs such as financial market stabilization (stock market stabilization funds, bond market stabilization funds, etc.) and the 100 trillion won real estate PF support program will also reflect serious accident risks, imposing penalties in terms of support priority, interest rates, and fees.
Once the FSC finalizes these guidelines, each financial institution will apply additional interest rates or credit limit penalties according to their own loan screening systems. Regarding concerns that reflecting serious accident risks in corporate loan reviews could constrain business activities, the FSC maintains that there is no issue.
An FSC official explained, "When the Gwangju Hwajeong I-Park collapse occurred, HDC Hyundai Development Company reflected losses exceeding 300 billion won, and banks adjusted their credit exposure to HDC Hyundai Development Company accordingly. As administrative sanctions are strengthened, changes in companies' future cash flows are inevitable, so financial institutions must reflect credit risk."
Additionally, information about the occurrence of serious accidents will be shared through capital market disclosures and ESG indices. This reflects the financial sector's opinion that an integrated system for sharing information on serious accidents is necessary to conduct loan screenings efficiently.
The FSC plans to finalize the details of the guidelines in cooperation with relevant ministries, financial institutions, and related organizations. The Ministry of Employment and Labor will announce the comprehensive plan in September.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
