Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
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Dec 05, 2019
- Measures to Improve Management of Risk Exposure in Project Finance
- The government introduced its plans to improve the management ofrisk exposure in real estate project finance on December 5.BackgroundProject financing in real estate is a financing mechanism based onthe business value of the project and the expected cash flows of the project inthe future. Due to the recent financial deepening and continuing low yields,project financing has increased significantly. Project financing provides an efficientway to finance real estate or infrastructure development projects.However, due to heavy reliance on the expected value of theproject, risk exposure is highly dependent on market conditions. Without propermanagement of risks, or in the case of a distortion of profits or risks, it maypose a threat to financial stability.Risk exposure in project financing has continued to increase especiallyin non-bank sectors since 2013. The prevalence of high-risk project financingloans, such as bridge loans, has dropped whereas the level of exposure bysecurities companies and specialized credit finance companies increased. Debtguarantees in project financing also increased as the burden of credit exposureshifted from construction companies to financial institutions.Recent TrendsAt the end of June 2019, the total amount of debt guarantees inproject financing stood at KRW28.1 trillion, out of which KRW26.2 trillion issuedby securities companies. The outstanding loan balance in project financing stoodat KRW71.8 trillion, rising on average 11.6 percent a year from KRW39.3trillion at the end of 2013. By the end of June 2019, both the default rate andthe sub-standard asset ratio continued to decline since 2013 from 13.0 percentto 1.9 percent and 16.9 percent to 3.0 percent, respectively, due to anincreased volume in project financing loans.Key MeasuresI. Improvingthe Soundness of Debt Guarantees in Project Financing► Establishing anupper ceiling on debt guaranteesUnder the current system,securities companies face no upper limits on issuing debt guarantees
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Nov 27, 2019
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Nov 18, 2019
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Nov 14, 2019
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Nov 08, 2019
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Oct 31, 2019
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Oct 18, 2019
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Sep 05, 2019
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Aug 08, 2019
- Implementation Plan for Margin Requirements for Non-centrally Cleared OTC Derivatives
- The FSC announced its adjusted schedule to implement initial margin requirements for non-centrally cleared derivative transactions in accordance with internationally- agreed standards:► Initial margin requirements for financial institutions with derivatives of KRW70 trillion or more will be implemented from September 1, 2020 as scheduled, while the implementation for those with derivatives of less than KRW70 trillion will be delayed until September 1, 2021.► The FSC will also propose a bill on margin requirements for non-centrally cleared OTC derivative transactions as the relevant guidelines by the Financial Supervisory Service (FSS) are due to expire in August 2020.Background Global discussionIn the aftermath of the global financial crisis of 2018, the G20 countries agreed to a series of reform proposals to enhance stability and transparency in OTC derivative markets.As part of such reform efforts, the Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) published a final report on margin requirements for non-centrally cleared OTC derivatives in September 2013, aimed at reducing a systemic risk and promoting central clearing of OTC derivatives.In the detailed framework announced in March 2015, the BCBS and IOSCO set differential implementation schedules according to the amount of non-centrally cleared OTC derivatives in order to give enough time to prepare for the new regime of margin requirements.On July 23 this year, the BCBS and IOSCO announced a postponement of implementation of initial margin requirements for financial institutions with non- centrally cleared derivatives of less than €50 billion, originally scheduled to come into force in September 2020, until September 2021. The one-year postponement is intended to ease the impact of the new rules on smaller financial institutions and give financial supervisory authorities enough time to prepare for domestic implementation. Domestic progressKore
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Aug 06, 2019
- FSC Vice Chairman's Remarks on Domestic Financial Market Conditions
- FSC Vice Chairman Sohn Byungdoo held a meeting with financial investment experts on August 6th to review the current conditions of Korea’s stock markets and discuss measures to mitigate short-term shocks.Vice Chairman’s remarksCurrent condition of domestic and global financial marketsKorea’s financial markets experienced volatility yesterday due to multiple domestic and external factors. Such trend is not confined to Korea, however, as global financial markets fluctuated as well due to multiple reasons such as: expectations that the U.S.- China trade dispute would be prolonged; concerns on sluggish global growth; and uncertainties regarding the U.S. rate cut. Domestically, Japan’s trade measures, major exporters’ worsened profit, and MSCI rebalancing posed additional impact.Moreover, China’s yuan weakened pass the psychological threshold of 7 RMB against the dollar, resulting to an increased volatility in won-dollar exchange rate. Announcement that the U.S. labeled China as a currency manipulator deepened concerns that the bilateral trade dispute would spillover to currency issues, resulting to a sharp drop in major stock markets such as Japan (↓2.7%) and Australia(↓3.0%).Measures to stabilize domestic financial marketsWorsened investor sentiment due to increased uncertainties is analyzed to have resulted in such stock market volatility.However, Korea’s financial markets are maintaining solid fundamentals1 after overcoming the 2008 global financial crisis and financial market turmoil in 2016 resulting from Brexit uncertainties.Moreover, there has been no overshoot in Korea’s stock markets even in times of global liquidity expansion. Korea’s stock markets are tend to be undervalued despite that price book-value ratio(PBR)2 is relatively low compared to global stock markets.1 Foreign exchange reserve($billion): (’97)20.4, (’08)239.7, (July,’19) 403.1Short-term external debt(%): (’97)286.1, (’08)84.0, (Mar,’19) 31.6CDS(5 yrs, bp): (end
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Aug 03, 2019
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Jul 18, 2019
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Jun 26, 2019
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Jun 17, 2019
- FSC to Reform Benchmark Interest Rates
- The FSC and the Bank of Korea (BOK) jointly launched a taskforce to develop a new benchmark interest rate, which aims to replace the current benchmark interest rate of certificate of deposits (CDs) by 2021. Co-chaired by FSC Vice Chairman and BOK Vice Governor, the taskforce is composed of officials from the Ministry of Economy and Finance, the Financial Supervisory Service, market participants and research institutions.The rate-rigging scandal of the London Interbank Offered Rate (LIBOR) in 2012 prompted global reform efforts to improve the representativeness and credibility of benchmark interest rates. In preparation for the expiration of LIBOR in 2022, the US, the UK, the EU, Japan and Switzerland are replacing it with new benchmarks such as “risk-free” overnight rates. Other countries including Australia, Canada, Hong Kong and Singapore, whose currencies are not used to calculate LIBOR, are also developing alternatives to enhance the representativeness and transparency of benchmark interest rates and their consistency with international standards.In line with the global move, Korea will also develop a new benchmark interest rate as an alternative to the CD rates, currently being widely used as a benchmark interest rate in Korea’s financial markets.However, the CD rates have fundamental limitations in serving as a benchmark interest rate: (i) the issuance of CDs is not sufficient; and (ii) CD rates are based on quotes, not real transactions.Against this backdrop, the FSC and the BOK jointly launched a taskforce to develop an alternative to the CD rates, which aims to publish a new benchmark interest rate in March 2021. Meanwhile, the taskforce will also come up with measures in the second half of 2019 to boost the issuance of CDs and improve the current method of calculating CD rates.At a kick-off meeting on June 14, FSC Vice Chairman Sohn Byungdoo called for an active role by market participants including banks, financial investment companies and the KRX i
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Jun 12, 2019
- FSC to Extend Guidelines for Comprehensive Supervision on Financial Conglomerates
- The FSC decided to extend the best practice guidelines for comprehensive supervision of financial conglomerates for another year with some revisions.The introduction of comprehensive supervision on financial conglomerates is one of key policy agenda under the Moon Jae-in administration. The comprehensive supervisory scheme is intended to capture and manage group-wide risks of financial conglomerates that conventional sectoral supervision cannot fully address. It will also help prevent any possible contagion of group-wide risks into financial affiliates.Since the FSC announced its plan to introduce a comprehensive framework for financial conglomerates in January 20181, best practice guidelines were established and implemented with seven financial conglomerates2 starting from July last year. As the guidelines are due to expire on July 1 this year, the FSC decided to extend the deadline to July 1, 2020. The FSC also made some amendments to the guidelines to reflect feedback received from financial conglomerates and make it better coordinated with other relevant laws.Given that the one-year pilot test under the guidelines is to be extended for another year, a list of financial conglomerates subject to comprehensive supervisory schemes will remain same with last year: Samsung, Hanwha, Mirae Asset, Kyobo, Hyundai Motor, DB and Lotte.Based on the guidelines, the FSC will provide detailed standards for designation of subjects of comprehensive supervision, capital adequacy and risk management assessment.At the same time, the FSC will continue our efforts to support a new legislation of comprehensive supervision on financial conglomerates. Currently, two bills have been proposed and under discussion at the National Assembly.
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May 30, 2019
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May 16, 2019
- FSC Secretary General Holds Meeting on Soundness of Household and Individual Business Loans
- FSC Secretary General, Sohn Byungdoo convened a meeting with the FSS and the KIF on May 15, to monitor the soundness of household and individual business loans.Summary of Secretary General’s remarksSecretary General Sohn stressed the need to exert more policy efforts to manage the soundness of household and individual business loans, and supporting financially vulnerable borrowers.Mr. Sohn said household loan default rate at the end of January 2019 stood at 0.84%(provisional figure), a slight increase compared to the end of last year(0.75%). However, he diagnosed the level of default rates1 is stable in general compared to last year. Individual business loan default rate at the end of first quarter, 2019 (0.75%) showed an increase as well compared to the previous month (0.63%), however, the default rate is yet reached a significant level.2.Mr. Sohn said that the recent increase in default rate is attributed to relatively loose screening on business loans, which has been on the rise in the recent few years; and rise in default rate in regional financial institutions3. But he stressed that since regional banks and non-bank financial firms4 have sufficient loss absorbing capacity, the risk of increased default rate to the financial system in general is restricted.Secretary General said the debt-service-ratio(DSR) will be fully implemented to the non-banking sector starting from June this year, and the financial regulators will thoroughly inspect that non-bank financial firms are appropriately operating the rent- to-interest(RTI) ratio and loan-to-income(LTI) ratio regulations.Mr. Sohn evaluated the financial industry’s voluntary debt reduction program for defaulted household loan borrowers is smooth-sailing, and emphasized that the government will ensure facilitation of debt reduction program tailored to each individual business loan borrower as well.
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Oct 29, 2018
- FSC Holds Meeting on Financial Market Conditions
- FSC Vice Chairman Kim Yongbeom convened a meeting with representatives of financial institutions this morning to examine financial market conditions and make sure that Korea’s economic and financial conditions are well prepared to deal with the recent market turmoil.SUMMARY OF VICE CHAIRMAN’S REMARKS:► KOREA’S ECONOMIC AND FINANCIAL CONDITIONSKorea’s economic fundamentals remain strong, despite recent downward revision of growth outlook and concerns on global economic conditions.From the macroeconomic perspective, Korea’s economic growth is expected to stay well above 2%. Its current account has recorded a straight 78-month surplus. It maintains sound fiscal balance with 2.3 % of GDP in fiscal surplus. Korea’s currency exchange and CDS premium are stable compared to those of major emerging markets.From the microeconomic perspective as well, Korea’s economic and financial indices have improved since the financial crisis of 2008. Banks’ short-term external debt ratio decreased, while BIS capital adequacy ratio increased. Banks have sufficient buffer against external shocks since they had turned net creditors in 2016.The self-assessment above is in line with evaluations by credit rating firms. Moody’s, SP and Fitch maintain good credit ratings with Korea, highly evaluating its external and fiscal soundness.► POLICY RESPONSESOverall, Korea has strong fundamentals to weather the recent turmoil in domestic and global financial markets. Given its characteristics of a small open economy, however, Korea may not be immune to the effects from external and internal uncertainties. In particular, readjustment of asset prices with monetary normalization in major economies may increase volatility in financial markets.Against this backdrop, the FSC will take measures to stabilize the stock market:First, the FSC will create a KRW500 billion fund with securities-related institutions to support the stock market. Out of the fund, KRW300 billion will come from ‘Ko
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Oct 18, 2018
- Debt Service Ratio(DSR) to be Introduced as Household Debt Management Standard
- BACKGROUNDKorea’s household debt growth has slowed down in recent years. It is unlikely that household debt would pose a systemic risk to the Korean economy in the near future; however, the government needs to stay alert from a longer-term perspective. The sheer size of household debt would continue to grow, and its growth pace still remains high. In the mid-to-long term, the government aims to keep household debt growth rate at a level close to nominal GDP growth rate. The FSC expects the introduction of debt service ratio (DSR) rules in conjunction with other lending standards will help reduce household indebtedness and curb rapid growth of household debt.DEBT SERVICE RATIO (DSR) RULESThe DSR was introduced on a trial basis first with banks last March and subsequently across the financial sector. Based on the test operation with banks for the past six months, DSR rules will be officially introduced as standards for banks to manage their household loans starting from October 31, 2018.Banks will be required to manage “high-risk” loans below a certain percentage of their total loans. To define high-risk loans, the FSC set two-tier DSR standards: loans with a DSR exceeding 70% will be considered as “risky”; and those with a DSR of 90% or above as “highly risky.” Currently, commercial banks are better positioned than local banks and specialized banks to cut back on the proportion of high DSR loans. Loans with a DSR exceeding 100% take up 14.3% of total loans in commercial banks, compared to 30.1% in local banks and 27.9% in specialized banks. The average of DSR is also different: 52% with commercial banks, 123% with local banks, and 128% with specialized banks. Considering the gaps in compliance burden, different levels of targets will apply:► Commercial banks will be required to manage the proportion of loans with a DSR exceeding 70% (hereinafter ‘risky loans’) below 15%; and those with a DSR exceeding 90% (hereinafter ‘highly risky loans’) bel
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Sep 14, 2018