The Financial Services Commission held a meeting with the Financial Supervisory Service, the Bank of Korea and financial industry associations on June 20 to check current market situation and discuss the progress of market stabilization measures and the operation of eased financial regulations.
With financial market conditions stabilizing, demand for market stabilization programs remains not so high currently. However, to be prepared for uncertainties at home and abroad, authorities already made an agreement on continuing to make the PF-ABCP (project finance asset backed commercial paper) purchase program available until the end of February 2024 for PF-ABCPs guaranteed by securities firms. Market stabilization programs including the bond market stabilization fund and the corporate bond and CP purchase program currently have KRW35 trillion in their remaining capacity, which provides an ample room to respond in the future in the case of market instability. In addition, authorities are closely monitoring the real estate PF market and taking necessary steps to help normalize the projects considered to be facing the risk of default. In this regard, the real estate PF lending institutions’ consortium agreement was activated to ensure an orderly normalization of at-risk projects.
Regarding the temporary easing of regulations applied on banks, insurers, savings banks, specialized credit finance businesses and financial investment businesses since after October of last year and extended partially in March 2023, participants evaluated that financial institutions are currently capable of responding to risks without the support made available by additional extension. However, to be prepared for potential expansion of uncertainties in the future, participants agreed on extending the availability of eased regulations for certain areas. As such, the eased regulations on banks’ loan-to-deposit ratio, credit offering limit between subsidiaries of a financial holding company and insurance companies’ borrowing limit from pension funds will be rolled back from July. The regulation on banks’ liquidity coverage ratio (LCR) will be gradually rolled back with 95 percent LCR applied from July until the end of December 2023. Banks’ LCR for 2024 and thereafter will be decided at the end of this year after considering the pace and breadth of the normalization process. The eased regulations on loan-to-deposit ratio of savings banks, KRW-based liquidity ratio of specialized credit finance businesses and their credit offering limit in real estate PF and the requirement to include bonds issued by specialized credit finance businesses when hedging assets in equity linked securities (ELS) will be additionally extended until the end of this year. In the event of an unexpected market turmoil in the future, authorities will take prompt actions to slow the pace of normalization or revise down relevant regulatory ratios.
The measure on total bank bond issuance intended to encourage dispersed issuance of bank bonds applied on a monthly basis currently will remain the same at 125 percent of bank bonds reaching maturity, but the term for controlling their total bond issuance will be eased from a monthly to a quarterly basis.
Regarding the recent rise in overdue debt ratio, participants assessed that an upward pressure may persist for a while, although the ratio of overdue debt is expected to decline when the current monetary policy tightening cycle comes to an end and the economic and real estate market conditions turn up. In particular, authorities will focus on the management of overdue debt payments in the nonbanking sector where the ratio of overdue debt has been relatively high recently.
Authorities will work to strengthen financial companies’ loss absorbing capacity and management of overdue debts through adequate levels of capital and reserve requirements and expansion of bad debt sell-offs. At the same time, authorities plan to make available an adequate level of microloan products to low credit borrowers who may experience a credit crunch following the rise in overdue debt ratio.