Regulator to vet banks lending competition

Korea's financial regulator said Friday that it will look more closely into banks' lending competition when it launches this year's regular checkup of the top four local banks.

Since last year, the Financial Supervisory Service (FSS) has conducted a one-month regular inspection of giant financial groups as well as their bank units in order to examine financial health and risk management.

Kookmin Bank is set to undergo the annual FSS examination from April 11 while checkups for Woori Bank and Hana Bank are scheduled for the third quarter. The test of Shinhan Bank is set for the fourth quarter.

The FSS said top priority of this year's inspection will be placed on gauging the top four banks' competition to issue loans.

"As the banking landscape is expected to reshape this year, the four biggest banks will likely mount more competition," a high-ranking FSS official said. "The annual checkup will be focused on determining excessiveness of banks' loan competition."

The FSS will take appropriate punitive action if a bank is found to have conducted competition-triggering activities, another FSS official said.

The comments came after former FSS governor Kim Jong-chang warned local banking group heads earlier this month against their heated lending competition before the governor stepped down last week.

Kim said the heated race to expand loan assets, which sometimes come at the cost of bank earnings, is feared to deal a heavy blow to their profitability and drive up chances of potential bankruptcy.

In a bid to cool down the excessive competition, the FSS will ratchet up supervision of banks' asset growth and order higher risk management on loan issuance, the former governor said.

Growing household debts, caused by banks' competition to issue mortgage loans and a low interest-rate trend, are cited as a severe risk factor to the economy as the central bank's expected rate hikes this year are feared to impair households' loan repayment ability and the health of banks.

Outstanding credit to households, which includes credit purchases and loans, stood at 795.4 trillion won ($725 billion) as of the end of 2010, up 25.3 trillion won from end-September and the fastest quarterly growth in more than eight years.(Yonhap)