Financial Sector to Face Less Provisioning Burden When Supporting Petrochemical Restructuring... "Now It's Time for Petrochemical Companies"

'Industrial Structural Innovation Support Financial Sector Agreement Ceremony' Held
Asset Quality Classification Standards Can Be Upgraded for Financial Support
Financial Sector Ready to Support Restructuring Plans
Kwon Daeyoung: "Petrochemical Companies Must Promptly Prepare Restructuring Plans"

Financial institutions will now be able to upgrade asset quality classification standards when supporting companies undergoing restructuring in the petrochemical sector. Even if a financially sound company becomes distressed during the restructuring process, the relevant credit can still be classified as normal (or precautionary), according to supervisory regulations that will be actively utilized in consultation with financial authorities. From the banks' perspective, this is expected to reduce the burden of provisioning, enabling them to provide more active support for petrochemical business restructuring.

The Korea Federation of Banks announced that it held an 'Industrial Structural Innovation Support Financial Sector Agreement Ceremony' together with 17 banks and policy financial institutions (Korea Credit Guarantee Fund, Korea Technology Finance Corporation, Korea Trade Insurance Corporation, Korea Asset Management Corporation), the Financial Services Commission, and the Financial Supervisory Service.

This agreement ceremony was organized following last month's financial sector meeting on supporting petrochemical business restructuring, and after further consultations. The parties signed the 'Operational Agreement for the Autonomous Council of Bond Financial Institutions to Support Industrial Structural Innovation' to pledge support for the restructuring of key industries such as petrochemicals.

Cho Yongbyung, Chairman of the Korea Federation of Banks, stated, "The petrochemical industry is currently facing challenges such as global oversupply and a fundamental weakening of competitiveness. In line with the government's comprehensive restructuring support, the financial sector has also prepared an autonomous agreement." He continued, "This agreement is significant in that it enables a win-win situation for both the financial sector and industry by providing preemptive financial support to sound companies, assisting their self-rescue efforts, and preventing insolvency. We will faithfully support companies in implementing their restructuring plans to ensure the agreement bears fruit."

Kwon Daeyoung, Vice Chairman of the Financial Services Commission, commented, "This agreement is meaningful in that it establishes a framework for preemptive business restructuring, and the petrochemical industry will be the first case."

He also requested, "Since the process of establishing a restructuring plan is a highly challenging task, the main creditor bank should approach it with a sense of mission and responsibility, rigorously evaluating the company's self-rescue efforts and plans, and actively supporting feasible restructuring plans."

Previously, banks had requested that the financial authorities clarify asset quality classification standards for bonds subject to maturity extensions and interest rate adjustments under the agreement, to enable more proactive financial support.

In response, the financial authorities explained that, since the financial support under this agreement is aimed at sound companies, is based on thorough self-rescue efforts by the company and its major shareholders, and is pursued for the purpose of improving profitability, asset quality classification can be upgraded in accordance with banking supervision regulations.

An official from the Financial Services Commission stated, "Supervisory regulations provide grounds for classifying credit that becomes distressed during restructuring as normal or precautionary. This will reduce the burden of provisioning for banks and increase their capacity to provide financial support for petrochemical business restructuring."

In particular, Vice Chairman Kwon once again urged the petrochemical industry to make efforts to implement restructuring. This is because the industry has yet to present specific plans to achieve its proposed reduction targets.

He emphasized, "To dispel market doubts about the petrochemical industry and to confirm companies' determination and execution capabilities, please promptly prepare a concrete blueprint. The financial sector has completed all preparations through the enactment of this agreement."

Meanwhile, under the agreement, when a company applies to its main creditor bank for restructuring support, the main creditor bank will convene an autonomous council of creditor banks holding the company's bonds to initiate the process. The council will assess the feasibility of the restructuring plan through an external joint due diligence and review financial support measures needed during the restructuring process.

Financial support will be provided in principle under current financial conditions and may include maturity extensions, interest deferrals, interest rate adjustments, and restrictions on acquiring additional collateral. If necessary, new funding may also be provided.

Once the restructuring plan is prepared through the council's deliberations and approved by the Ministry of Trade, Industry and Energy, the council and the company will sign a structural innovation agreement that includes the restructuring plan and financial support measures, thereby officially launching the initiative.