▲ Financial Services Commission
Starting next year, banks will be restricted from providing real estate project financing (PF)-related credit extensions exceeding 20% of their total credit extensions.
The Financial Services Commission (FSC) announced today (September 30) that it will issue a legislative notice regarding these amendments to the Regulation on Banking Supervision until November 9.
This measure follows up on the Improvement Measures for Real Estate PF Soundness jointly announced by relevant government ministries in December of last year.
At the time, the government announced the introduction of real estate PF limit regulations by financial sector to prevent financial institutions from excessive risk exposure and concentration in real estate PF, thereby enhancing soundness related to real estate PF.
Accordingly, a "real estate PF credit extension limit" regulation will be established as a management guidance ratio under the Regulation on Banking Supervision.
The real estate PF credit extension limit regulation will take effect on January 1 of next year.
A grace period of up to three years will be granted for banks that exceed the credit extension limit ratio at the time of implementation to resolve the excess.
In addition, funds operated in foreign currency settlement accounts will be excluded from the scope of credit extensions under the Banking Act.
This decision took into consideration that the operation of foreign currency settlement accounts by banks differs from the intent of the credit extension limit regulations for major shareholders under the law, and that the Insurance Business Act excludes similar fund operations from credit extensions.
Currently, multiple banks open and operate foreign currency settlement accounts with overseas local banks to support overseas settlement operations for domestic corporations and efficiently conduct overseas fund transactions.
Under current laws, banks can provide credit extensions to major shareholders within 25% of their equity capital (or the major shareholder's equity investment ratio). The FSC pointed out that because the amount in foreign currency settlement accounts (deposits) is also included in credit extensions, some banks could face difficulties in complying with the credit extension limits for major shareholders.
The FSC expects that this institutional improvement will facilitate fund operations such as trade settlements for domestic import and export companies, and enhance the efficiency of banks' fund settlement operations.
Specialized banks will also see their management evaluation systems reorganized to strengthen internal control evaluations.
Internal control (I), currently a sub-item of risk management (R), will be separated into an independent category, and its evaluation weighting will be significantly increased (from 3.2% to 10.0%).
In February 2024, the FSC reorganized the management evaluation system for commercial banks, separating internal control into an independent evaluation category and substantially raising its evaluation weighting (from 5.3% to 15.0%).
The revisions also include reasonably permitting face-to-face operations for internet-only banks when unavoidably necessary—despite the principle that they cannot conduct face-to-face business—for purposes such as debtor guidance, consultation, negotiation, and debt adjustment counseling.
(Photo provided by the Financial Services Commission, Yonhap News)
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