Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Financial supervisory chief warns on risk of rising household debt
Financial Supervisory Service Governor Yoon Suk-heun speaks during a year-end online press conference at its headquarters in Seoul, Wednesday. Screen capture from YouTube
By Lee Min-hyung
By Lee Min-hyung
The Financial Supervisory Service (FSS) has reiterated its determination to maintain strict regulations on household lending, as the nation's household debt-to-GDP ratio remains at a very high level.
“We do not consider the non-collateral (credit) loan regulation excessive because of the relatively high household debt level and the coronavirus-induced economic downfall,” FSS Governor Yoon Suk-heun told reporters during a year-end online press conference, Wednesday.
In November, the regulator adopted an unprecedentedly high level of credit loan restrictions targeting major lenders. As revenue from interest rates is a major cash source for banks, the lenders were unhappy with the regulation.
“We are aware of their temptation to resume the loan business, but each of the financial firms may not be able to identify potential risk factors over (rising) household loans,” Yoon said. “The FSS remains very worried over the high level of household debt.”
As coronavirus-related economic uncertainties remain, no one can say for sure when the economy will get back on a stable track for recovery, he said.
Yoon also shared his views on the regulator's pressure on banks to cut year-end dividends in this period of virus uncertainties.
Banks did not welcome the call, saying that enhancing shareholders' value should be one of the top management policies when major bank stocks are nose-diving.
“Our position remains unchanged,” Yoon said. “We are urging banks to refrain from expanding their dividend offerings or buying back their own shares. The main purpose of the call is for banks to enhance their loss-absorbency capacity against the possibility of prolonged virus shocks here.”
He also hinted at the possibility of additional measures to ensure banks' financial soundness.
The stock prices of the nation's major lenders ― such as KB, Shinhan, Hana and Woori ― have been on a steep decline in recent months amid foreign investors' mass selling. According to data from the Korea Exchange, foreign investors sold bank shares worth 380.4 billion won net in November. Their selling last month of KB Financial Group and Shinhan Financial Group came in at 103.5 billion won and 66.9 billion won, respectively.
Despite the pessimistic circumstances, the regulator reaffirmed its determination to place top priority on banks' financial stability.
“We are carrying out a series of stress tests for financial organizations ― including major financial holding companies here,” Yoon said. “But some of them have failed to pass the test under the scenario that the virus fear will continue for a longer period of time. Our view is that they should be prepared for such a scenario and take preemptive steps against possible looming financial challenges.”