Press Releases - Financial Services Commission

Press Releases

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Nov 04, 2022

Authorities Hold Meeting to Review Financing Situation of Specialized Credit Finance Businesses

The FSC and the FSS held a meeting with the Credit Finance Association of Korea and specialized credit finance business companies (credit card firms and capital companies) on November 4 to review financial market situation. At the meeting, financial authorities checked the borrowing condition (bonds and CPs) of specialized credit finance business companies and listened to their opinions. Financial authorities have been keeping close tabs on the financing condition of specialized credit finance businesses and have already taken a necessary step to facilitate their bond financing by allowing the bond market stabilization fund to buy financial bonds issued by several specialized credit finance businesses from November 3. In the mean time, the ongoing regulatory plan to reduce the maximum ratio of financial bonds issued by specialized credit finance business companies, which are incorporated into the portfolio of derivatives-linked securities (ELS, DLS, etc.) issued by securities firms to hedge risk, will be applied flexibly. According to the previous plan, the maximum ratio would have been 12 percent until the end of 2022 and lowered to 8 percent from the beginning of 2023. However, that plan is postponed for three months, which will allow those ELS or DLS to incorporate up to 12 percent of financial bonds issued by specialized credit finance business companies for the purpose of risk hedging until the end of March 2023. At the meeting, financial authorities encouraged specialized credit finance business companies to make persistent efforts to support the stabilization of financial markets by effectively managing their own liquidity condition and the soundness of their assets. Authorities emphasized that financial authorities and the industry should make joint efforts and communicate regularly to stabilize markets. Financial authorities will continue to closely monitor changes in financial markets and promptly carry out necessary measures to stabilize markets. * Please
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Nov 03, 2022

Authorities Hold Meeting with Life Insurance Businesses to Monitor Market Situation

The FSC and the FSS held a meeting with life insurers on November 3 to share current issues in the insurance sector and monitor current market situation. At the meeting, participants discussed the recent situation where insurance companies are having to resort to bond sales due to an abrupt increase in demand for liquid assets following a rise in the number of surrendered savings insurance policies driven by increasing interest rates on savings products amid growing market uncertainties. In this regard, the insurance sector expressed the need for measures that will help them accumulate more liquid assets or alleviate their burden of having to maintain certain levels of liquid assets. In response, financial authorities stated that the insurance companies rising demand for liquid assets is understandable. However, to ensure stability in money market, authorities asked insurers to refrain from selling bonds and more actively contribute to market stabilization efforts as institutional investors. Nonetheless, authorities decided to seek measures to help insurers to better respond to the recently expanded volatility and uncertainty of funding market. To this end, authorities will temporarily ease the liquidity risk evaluation standardfor insurers to facilitate their active contribution to market stabilization efforts such as capital calls for the bond market stabilization fund. In addition, at a meeting with non-life insurers on October 28, authorities already decided to expand the types of liquid assets for insurers when applying the liquidity ratio regulationto ease their burden of maintaining liquid assets. Also, for other measures to increase liquiditysuggested by insurers, authorities will promptly review their viability while maintaining close communication throughout. The measure to temporarily relax the liquidity risk evaluation standard for insurers will take effect promptly with a revision to the detailed regulations on supervision of insurance businesses in Nov
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Nov 01, 2022

FSC Chairman Meets with Financial Holding Company CEOs and Discusses Market Stabilization Measures

FSC Chairman Kim Joo-hyun met with CEOs of five major financial holding companieson November 1 and held talks on current financial market situation. At the meeting, Chairman Kim and participants discussed the important role of financial holding companies in stabilizing markets, ensuring liquidity provision to the real economy and providing support for vulnerable debtors. Summary of Remarks by FSC Chairman Amid global monetary policy tightening, Koreas money market reacted sensitively to certain market shocks, which has resulted in the spread of anxieties even to the corporate bond market. However, the governments swift announcement and implementation of market stabilization programs worth KRW50 trillion-plus, in conjunction with the Bank of Korea and the banking sectors speedy efforts, helped to stop market situations from getting worse and that market conditions are gradually returning to stability. To ensure effectiveness in the governments market stabilization measures, it is necessary to have market participants play their parts and cooperate with each other to facilitate seamless circulation of funds. In particular, the role and responsibility of financial holding companies and their affiliated financial institutions like banks are important as they make up a big part of financial markets and have good financial and liquidity conditions. Financial holding companies and their affiliated banks recent earnings temporarily increased mostly as the amount of loans increased amid expansive fiscal and monetary policies put in place to deal with the COVID-19 pandemic and as global monetary policy tightening followed. Thus, it is expected that financial holding companies and their affiliated banks will play a role in enabling smooth flow of funds through financial markets by acting as intermediaries to stabilize markets, ensure provision of liquidity to the real economy and assist vulnerable debtors. In this regard, financial holding company CEOs are encouraged to make e
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Oct 28, 2022

Authorities to Temporarily Ease Regulation on Bond Issuance Procedure for Banks

The FSC and the FSS will temporarily ease a rule on the bond issuance procedure from October 28 to help banks more flexibly correct their already filed total amount of bonds to be issued. Pursuant to the Financial Investment Services and Capital Markets Act (FSCMA), banks are issuing their bonds after filing advance registration statements with the FSC that include total amount of bonds to be issued for certain periods in the future (from two months to two years each, under the universal shelf registration statement system).Under the FSCMA, when a bank wants to correct the total amount of bonds to be issued written on an already filed registration statement, the amount can only be reduced up to 2+0 percent from the predetermined amount. This rule restricts banks from making reduction to the predetermined issue amount of bonds on their registration statement by more than 20 percent when they need to take steps in reaction to market uncertainty or take measures to help stabilize the bond market. Responding to this, authorities will not impose penalties on banks that fail to issue bonds according to their previously submitted registration statements. The penalty exemption will apply to bank bonds already determined to be issued until December 31, 2022 on the statements. Authorities will consider the need for extending the period of penalty exemption in the future after taking into account market situations. This exemption will relieve banks from a duty to issue bonds just to comply with their previously submitted registration statements and thereby alleviate potential worries in the bond market that bank bond issuance may drive out the demand for corporate bonds. With the issuance of a no-action letter, this penalty exemption will take effect immediately on October 28. * Please refer to the attached PDF for details.
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Oct 27, 2022

Regulation on Loan-to-Deposit Ratio to be Temporarily Eased to Facilitate Corporate Financing

The FSC announced that financial authorities will temporarily ease the regulation on loan-to-deposit ratio, which will enable banks and savings banks to provide sufficient liquidity to businesses. The demand for business loans increased as a result of the recent contraction of the corporate bond market.However, the current regulation on loan-to-deposit ratiohas prevented banks from responding actively to these demands for borrowing. To facilitate active response, loan-to-deposit ratio is chosen as a first step of temporary regulatory easing because it is only domestically regulated and swiftly adjustable. Authorities will continue to monitor financial market situations and consider whether other deregulatory steps on such indexes like LCR (liquidity coverage ratio), NSFR (net stable funding ratio) should be taken. Details of Temporary Regulatory Easing To help banks and savings banks to more effectively respond to corporate loan requests, the loan-to-deposit ratio requirements will be eased from 100 percent for both to 105 percent for banks and 110 percent for savings banks. The eased loan-to-deposit ratio requirements will be applied for upcoming six months first, and authorities will take into account extending the period after reviewing market situation. With this easing of loan-to-deposit ratio requirements, banks and savings banks will have additional capacity to lend more to businesses. Furthermore, competition for deposit-taking is alleviated, and thus reduced borrowing costs will help in part to contain upward pressure on interest rates of corporate loans. Further Plan Financial authorities will issue a no-action letter in October to allow temporary easing of loan-to-deposit ratio rules immediately. Changing the calculation method will also take effect immediately with a no-action letter in October, but authorities will revise the supervisory regulation on banking business afterward to make the change officially. Authorities will maintain close communication
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Oct 26, 2022

Authorities Hold Market Monitoring Meeting to Check Market Stabilization Efforts of Banks

The FSC and the FSS had a meeting with five major banks on October 26 to check the progress of the banking sectors efforts to stabilize current financial market situation after last weeks decision to postpone gradual normalization of banks LCR (liquidity coverage ratio) requirement by six months. At the meeting, officials from the banking sector said that banks now have more capacity for lendingwith the help of the postponement in gradual normalization of their LCR requirementand pledged to strengthen efforts to stabilize markets. In particular, banks said that they will purchase CPs (commercial papers), ABCPs (asset-backed commercial papers) and electronic short-term bonds to stabilize money market and bond market. Meanwhile, banks showed their commitment to quickly respond to capital calls from the bond market stabilization fund and minimize issuance of bank bonds. In addition, banks expressed their willingness to maintain financing support for the corporate sector through the purchase of special bank bonds including bonds issued by the Korea Development Bank (KDB), the supply of corporate loans and the extension of credit line. Financial authorities encouraged the banking sector to prop up and stabilize financial markets. Authorities also promised to step up communication with banks and keep close tabs on financial market situations. * Please refer to the attached PDF for details.
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Oct 26, 2022

Liquidity Support Programs Made Available for Securities Firms

The FSC held a meeting with securities firms on October 26 to explain the implementation plan of market stabilization measures, which was announced at the government-wide emergency meeting on macroeconomic and financial stability held on October 23. The meeting also checked the liquidity conditions of securities firms and money market. Authorities announced that liquidity support programs will be available for securities firms as part of the market stabilization measures announced at the earlier emergency meeting. The Korea Securities Finance Corporation (KSFC) begins providing KRW3 trillion-plus of liquidity support for securities firms from today. The Korea Development Bank (KDB) will begin to purchase KRW2 trillion-plus worth of CPs (commercial papers) issued by securities firms from October 27. With these programs in place, authorities expect that securities firms undergoing temporary liquidity shortages will be able to secure liquidity, depending on their situations. Key Details of Liquidity Support Programs a) Korea Securities Finance Corporation The Korea Securities Finance Corporation (KSFC) begins to provide KRW3 trillion of liquidity support for small and medium-sized securities firms through repurchase agreements (repos) and stock-secured loans from October 26. In particular, since the coverage of collateralizable securities for repos and loans is further expanded, securities firms will be able to make better use of this liquidity support program. b) Korea Development Bank The Korea Development Bank (KDB) begins to operate the corporate bond and CP purchase program worth KRW10 trillion. The KDB injects KRW2 trillion first to purchase CPs issued by securities firms from October 27. However, as this program exceptionally purchases financial companies CPs only during this time, the liquidity support will be provided to them with a condition of restructuring efforts. c) Efforts Aimed for Normalization of Money Markets by Securities Industry Along with the ope
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Oct 24, 2022

Financial Authorities Hold Meeting to Respond to Bond and Money Market Situation

FSC Chairman Kim Joo-hyun presided over a meeting of senior FSC officials on October 23 right after the government-wide emergency meeting on macroeconomic and financial stability took place. At this meeting, Chairman Kim ordered authorities to promptly take follow-up actions to implement the support measures announced at the earlier emergency meeting. After the senior official meeting, FSC Standing Commissioner Kwon Dae-young held another meeting with the Financial Supervisory Service (FSS), financial industry groups, policy financial institutions and commercial financial institutions to check the recent situation of bond and money market and related risk factors in financial institutions. At the meeting, financial authorities explained that they will immediately activate the KRW50 trillion-plus liquidity of supportive measures announced at the government-wide emergency meeting. Authorities emphasized that the government, aiming to ensure market stability, will provide ample support by all means necessary. In addition, as restoration of market mechanisms is the key to overcome the current problematic situation, authorities said, market participants such as financial institutions and institutional investors also should step up their own efforts to facilitate recovery of the role of financial markets as intermediaries and accordingly to ensure a virtuous cycle. Moreover, authorities underscored the need for concerted efforts of both the government and the private sector. Application of all available means at their disposal and close communication between them should be in harmony to ensure market stability as the government alone has limited financial resources. Financial industry groups, in response to authorities request, also showed their commitment to strengthen efforts to stabilize financial markets and actively cooperate with the governments measures. * Please refer to the attached PDF for details.
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Oct 21, 2022

FSC Decides 6-Month Postponement in Rolling Back Regulatory LCR for Banks

The FSC held a meeting with the Financial Supervisory Service (FSS) and five major bankson October 20 to review financial market situation with a focus on the banking sectors capital raising and management and the atmosphere of financial markets including money market. At the meeting, financial authorities and participants from five major banks shared the recent view that volatility and uncertainty have expanded in money market. In order to actively respond to this situation, financial authorities decided to slow down the pace to reverse eased regulations during the pandemic. Following this, the date of regulatory rollback on banks LCR (liquidity coverage ratio) requirement will be postponed for six months. Moreover, financial authorities encouraged banks to step up efforts in helping to stabilize the corporate bond and CP (commercial paper) markets. * Under the current regulatory rollback plan, banks are allowed to maintain regulatory LCR of 92.5% until the end of December 2022. But a six-month postponement would allow them to maintain LCR requirement of 92.5% until the end of June 2023. Financial authorities will strengthen monitoring of financial markets in the future and seek timely implementation of necessary measures. * Please refer to the attached PDF for details.
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Oct 20, 2022

FSC Chairman Orders Short-term Money Market Stabilization Measures

Financial authorities observe money market with careful attention to the recent increase in its volatility. In particular, authorities are closely watching instigating factors that contribute to market anxieties in the aftermath of the PF-ABCPincident in Gangwon-do, where the provincial government promised debt guarantee. In this regard, aiming to prevent those anxieties from spreading across financial markets, FSC Chairman Kim Joo-hyun urged authorities to strengthen market response efforts in need. To this end, authorities will make the bond market stabilization fund restart the purchase of corporate bonds and CPs (commercial papers) with KRW1.6 trillion of residual amount in it and prepare for making additional capital calls immediately. Authorities are also monitoring securities firms and specialized credit finance companies with a focus on their liquidity availability, and plan to actively provide liquidity support through the Korea Securities Finance Corporation. In addition, authorities would ease some liquidity requirement for financial institutions in such a way to postpone the normalization of banks regulatory LCR (liquidity coverage ratio). Along this line, if needed, authorities will promptly prepare and announce a financial support program to avoid the spread of fear related to the real estate development project financing market. * Please refer to the attached PDF for details.
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Oct 12, 2022

FSC and FSS Hold Joint Market Monitoring Meeting

The FSC held a market monitoring meeting jointly with the Financial Supervisory Service (FSS) on October 12, reviewed the impact of the Bank of Koreas recent interest rate hike (+50 bp) on financial markets and financial institutions, and discussed response strategies to mitigate risk. To ease volatility in stock markets, financial authorities agreed to ensure a timely reactivation of the stock market stabilization fund by promptly carrying out additional purchase agreements with institutional investors. While continuously watching market situations, authorities will spare no effort to prepare for a timely implementation of additional market stabilization measures in need. In addition, authorities shared the same view that institutional investors need to play a responsible role based on a mid- and long-term perspective to prevent the spread of anxiety in financial markets. Authorities also promised to make efforts to alleviate corporate financial difficulties amid interest rate hikes and to prevent an abrupt one-side movement of market interest rates. To this end, authorities plan to carry out the following. a) Strengthen support for businesses with low credit by expanding the corporate bond and CP (commercial paper) purchase capacity of policy financial institutions from current KRW6 trillion to KRW8 trillion. b) Actively respond to the recent vulnerabilities in bond markets such as real estate project financing and ABCP (asset-backed commercial paper) and bolster efforts to prevent liquidity crunch of healthy businesses. c) Take necessary steps depending on market situations to activate a backstop to reduce volatility in market interest rates. For example, restart purchase of corporate bonds and commercial papers with KRW1.6 trillion residual amount of the bond market stabilization fund. d) Actively prepare a liquidity injection mechanism to stabilize financial markets in close coordination with relevant institutions. Authorities also committed to reduce burdens o
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Sep 07, 2022

FSC Prepares Additional Measures to Improve Convertible Bond Market

The FSC announced additional measures for improving rules on the convertible bond market on September 7. As in the case with the convertible bonds (CBs) and bonds with warrants (BWs) issued by listed firms, the regulation on refixing and call option will also apply to (redeemable) convertible preference shares issued by listed companies. Background In October 2021, the FSC introduced a revisionto the regulation on the issuance of securities and disclosure to help prevent CBs from being used in unfair transactions in such cases where CBs are used expediently to increase the shareholding of largest shareholders. Moreover, the FSC introduced a supervisory guideline on the accounting practices of CB call options to help improve the transparency in CB market from an accounting perspective. However, in the process of pursuing regulatory improvements, a concern has been raised about the possibility of stronger regulation (on refixing, etc.) posing excessive restriction on companies fundraising activities.Therefore, the authorities have prepared additional measures for regulatory improvement after examining the trend of CB issuance since the revised regulation went into effect from December 1, 2021. Convertible Bond Market Trend (Issuance Amount) The monthly average CB issuance amount in the first quarter of this year was KRW579.0 billion, a drop of 36 percent compared to the same period last year (KRW904.6 billion)This is on a par with the declining trend of corporate bonds over the same period (down 29.2 percent y-o-y). However, when including the amount of CB issuance prior to the implementation of the revised regulation (KRW2.2 trillion, November 2021), the monthly average CB issuance amount appears to be on course for recovery after a temporary fluctuation. (Issuance Rate) With the expansion in liquidity amid COVID-19 response measures, the CB issuance rate went down slightly in 2020 but edged back up narrowly due to the effects of base rate hike, etc. (Refixing Propor
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Sep 01, 2022

FSC Holds 4th Financial Risk Taskforce Meeting

FSC Vice Chairman Kim So-young held the 4th financial risk taskforce meetingon August 31 jointly with other relevant institutions.The 4th taskforce meeting discussed the following two agenda(a) measures for improving the loss absorbing capacity of financial sectors in response to financial market uncertainties and (b) detailed implementation plans of various market stabilization measures which had been deployed in past financial crises. Summary of Vice Chairmans Remarks In his opening remarks, Vice Chairman Kim assessed that volatility in financial markets has increased due to concerns about the prospect of the Feds aggressive monetary tightening, Europes economic recession, and potential economic slowdown in China, etc. Given the increased uncertainty in financial markets such as rising debt servicing burden of borrowers and a potential collapse in major asset prices, Vice Chairman Kim emphasized that it is necessary to strengthen monitoring of risk factors in the financial sector and prepare response measures preemptively. In order to proactively respond to the accumulated risks such as an increase in lending to vulnerable borrowers and real estate project finance (PF) loans, Vice Chairman Kim stated that the financial authorities will examine the level of loan loss provisions of banks and nonbanks to make sure that they have sufficient capacity to absorb potential losses. He said that the authorities are planning to (a) raise the loan loss provision coverage ratio for the nonbank sector such as savings banks, mutual finance companies and specialized credit finance businesses and (b) introduce a regulatory ground to allow the finical authorities to require banks to set aside additional special loan loss reserves. In particular, for the nonbank sector whose assets have been rapidly increased, Vice Chairman Kim said that the authorities will ensure that they hold a sufficient level of capital while bolstering risk management. In addition, considering the close-knit
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Aug 29, 2022

New Start Fund for Small Merchants and Self-employed Business Owners Hit by Covid-19 To Be Launched

A debt adjustment program, called New Start Fund, for small merchants and self-employed business owners hit by the Covid-19 crisis will be launched in October.The New Start Fund is intended to ease their debt payment burden as they are struggling to repay their debt since they suffered unavoidable losses while cooperating with the governments quarantine measures such as social distancing policy and restrictions to business operations. Background Over the past two and a half years, self-employed business owners and small merchants have suffered inescapable damages in the process of cooperating with the governments preventive measures, such as restrictions on business operation, in response to the COVID-19 crisis. As their businesses slowed down and financial conditions deteriorated, small businesses turned to debt and the size of their loans have grown significantly with increased burdens for principal and interest payments. Major institutions including the Bank of Korea evaluate the size of potential insolvency of self-employed business owners to be about 5 to 8 percent of their total loans. With the availability of COVID-19 support measures such as the loss compensation support, funding support through fiscal spending and the loan maturity extension and payment deferment program, the vulnerability of their debt situation had not surfaced yet. However, there are possibilities that their insolvency potential may build up and expand if there is another wave of COVID-19 or a worsening of the economic or financial conditions due to high levels of interest rates, prices and USD-to-KRW exchange rates. Against this backdrop, the FSC has prepared a debt adjustment program (called New Start Fund) to help prevent an expansion in the insolvency potential of the pandemic-hit small businesses and to provide a chance of credit recovery and restart for debtors who have already turned insolvent. The debt adjustment program will help lower excessive payment burdens (high interest ra
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Aug 11, 2022

FSC Plans to Introduce Small Business Loan Refinancing Program

The FSC announced its plan to introduce a small business loan refinancing program worth KRW8.5 trillion to help lower interest payment burdens of self-employed business owners and small merchants. Background In the process of dealing with the COVID-19 pandemic, the size of loans for the self-employed and small merchants increased as well as their debt service burdens, and the qualitative structure of their loans deteriorated with an expansion in high interest rate loans from nonbank sectors. Recent interest rate hikes resulting from an accelerated pace of monetary tightening in major economies has resulted in added debt servicing burdens for the self-employed and small merchants. As such, small businesses hit by a protracted pandemic are experiencing difficulties in normalizing their business operation while making payments on high interest rate loans at the same time. At the 2nd emergency meeting for stabilizing peoples livelihoods held on July 14, the government introduced comprehensive support packages for self-employed business owners and small merchants in the amount of KRW80 trillion as shown below. a) (For Borrowers with Repayment Capability) KRW41.2 trillion in financing support for liquidity provision and to help boost their business competitiveness (already announced on July 25) b) (For Borrowers Having Difficulties with High Interest Rates) KRW8.5 trillion in refinancing support with low interest rate loan (included in todays announcement) c) (For Borrowers without Repayment Capability on Their Own) KRW30 trillion worth New Start Fund to be set up for debt adjustment support through principal payment reduction, etc. (to be announced in mid-August) Today, the FSC is announcing specific plans for introducing a low interest rate refinancing program in the amount of KRW8.5 trillion to help alleviate the self-employed and small merchants payment burdens with high interest rate loans. Key Details of Low Interest Rate Refinancing Program I. Eligibility The low i
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Aug 03, 2022

FSC Announces Measures to Strengthen Financial Support for Business Transformation

The FSC unveiled a plan to provide financial support in the amount of about KRW1 trillion to companies pursuing business transformation to cope with changing digital and environmental conditions in order to help domestic companies regain their competitiveness edge and expand their business areas. Background In the process of responding to the COVID-19 pandemic, the rapidly changing business conditions such as digital transformation and carbon net zero movement have necessitated businesses to make changes at a greater level. Considering a slowdown in the level of business productivity, it has become necessary for companies to proactively seek structural transformation of their business in order to enhance the level of competitiveness. Measures to Support Business Transformation Currently, the Ministry of Trade, Industry and Energy (MOTIE)s standards for approving business transformation activities and the evaluation standards used by financial institutions remain different, so that it has been difficult to provide financing support to those that have been approved by MOTIE. Therefore, authorities will strengthen the pre-selection process to ensure that businesses that are eligible to receive financial assistance are selected as the entities pursuing business transformation by introducing a two-staged evaluation process (evaluation of disqualification criteria and evaluation of technological prowess). a) The business transformation support center will examinethe financial conditions of applicants and determine whether there are any reasons for disqualification. b) A technology credit bureau (TCB) will examine and determine the technological prowess and the viability of business model for those that have passed the evaluation of disqualification criteria. Through TCBs technology appraisal,the feasibility of new business model will be evaluated such as the potential for expanding sales, operating profit, etc., and the capability for capital expansion will be evaluated b
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Jul 26, 2022

FSC Announces Plan to Introduce Insolvency Resolution Mechanism for Financial Institutions

The FSC announced a plan to introduce an insolvency resolution mechanism for financial institutions (tentatively called financial stability account) to help prevent insolvency of financial institutions. The plan was discussed at the financial risk response taskforce meeting held on July 26. With changes in financial market environment, there have been calls for introducing a mechanism that can help protect financial institutions against insolvency and prevent risks from spreading in advance. In the wake of the 2008 global financial crisis, major economies such as the U.S., EU and Japan established such preventive support systems. In this regard, the FSC is considering ways to introduce an insolvency resolution mechanism for financial institutions (tentatively called financial stability account)for insolvency prevention of financial institutions through liquidity provision and capital expansion. The FSC will prepare a detailed plan after coordinating with relevant ministries and institutions and gathering opinions from experts and seek revision to the Depositor Protection Act accordingly. Background With some of the changes taking place in the financial industry such as the growth of the nonbank sector, deepening interconnectedness between financial sectors and unpredictability in shock originating from the real economy sector, there is growing concern about risks in certain areas spreading across the entire financial system. Therefore, through provision of liquidity injection and capital expansion to the financial sector facing temporary distress amid a crisis situation, it is necessary to keep the cost of maintaining stability in the financial system to a minimum levelby preventing insolvency of financial institutions as well as spread of risks. Major economies such as the U.S., Japan and EU had already set up relevant systems to prevent systemic risks and minimize the cost of insolvency resolution in the wake of the 2008 global financial crisis. On the contrary, t
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Jul 13, 2022

Authorities Introduce Measures to Stabilize Corporate Bond and CP Markets

The FSC announced preemptive market stability measures on July 13 to help stabilize corporate money markets amid rising volatility in the corporate bond and CP markets and financing difficulties exhibited by some businesses due to the impact of recent market rate increases. The Korea Development Bank (KDB) and Korea Credit Guarantee Fund (KODIT)s operation of the corporate bond and CP purchase programswill be extended until March 2023 and the maximum purchase cap will be expanded to KRW6 trillion. Corporate Bond and CP Market Assessment The FSC along with the Financial Supervisory Service, other relevant institutionsand market participants has been closely monitoringthe corporate bond and CP markets amid concerns over increasing volatility in the corporate bond and CP markets due to recent rate hikes. Current Situation in Corporate Bond and CP Markets Due to deteriorating conditions for issuing corporate debt amid expansions in interest rates and spreads, there have been concerns about a slowdown in the issuance of corporate debt and risk for refinancing particularly for low-rated and vulnerable businesses. I. Corporate BondMarket Situation (Issuance) In H1 2022, the amount of corporate bonds (for both non-financial and financial businesses) issued was KRW89.3 trillion, a decline from the same period in the previous year,and the trend for low-rated (non-investment grade) businesses (A-rating or lower) has been continuously declining since March. (Interest Rate and Spread) With acceleration in monetary tightening by major economies and continuing rate hikes by the Bank of Korea, the issuing rateshave increased and spreadshave expanded too. Especially, corporate bond spreads in general have recently gone up higher than the highest point recorded during the COVID-19 pandemic era (June 2020). (Refinancing Risk) Corporate bonds (non-financial businesses) maturing in H2 2022 amount to KRW15.4 trillion, which is the largest since 2017, and the proportion of non-investment
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Jun 23, 2022

FSC Holds 2nd Financial Risk Taskforce Meeting

FSC Vice Chairman Kim So-young held the 2nd financial risk taskforce meeting on June 23 jointly with the other relevant institutions.The meeting discussed the following three issues(a) expanded operation of the emergency response review system,(b) preparing ten major financial risk response tasks and focusing review on these issues and (c) working on preemptive support measures to prevent default risk of financial companies. In his opening remarks, Vice Chairman Kim stated that volatility has been expanding in global financial markets and there are growing concerns about economic slowdown amid a prolonging war in Ukraine and an acceleration of monetary tightening in the U.S. and other major economies. As such, Vice Chairman Kim emphasized that it is necessary to more closely and comprehensively check market risks with a strong sense of urgency as if a complex crisis situation may surface anytime. In addition, Vice Chairman Kim said that while maintaining a daily financial market monitoring system, the authorities have strengthened the emergency response review system through an expanded operation of the financial risk response taskforce and that the authorities will carry out monitoring focused on ten major response tasks. Vice Chairman Kim said that the government will promptly implement the financial support programs to help with peoples living conditionsthat have been included in this years second supplementary budget.Along this line, in order to identify and alleviate the hardship experienced by vulnerable groups, Vice Chairman Kim said that the authorities will set up and operate a taskforce to help relieve financial difficulties of vulnerable groups and prepare specific support measures in advance. While reviewing the risk factors and the liquidity and soundness conditions across the financial system, Vice Chairman Kim talked about the need for a plan to manage excessive leverage of specialized credit finance companies as their high dependence on the issuance
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Jun 09, 2022

Financial Authorities Hold Meeting to Review Risks in Insurance Sector

The FSC held a meeting on June 9 to review risks and discuss response measures in the insurance sector amid increasing volatility in financial environments due to increases in interest rates and the exchange rate.For insurance companies declining levels of risk-based capital (RBC) ratios as a result of steep rate hikes causing an expanded level of losses on valuation of bonds, the authorities have prepared a measure for providing a buffer to release a portion of surplus that insurance companies may recognize as available capital for calculating RBC ratios. Key Risk Factors Response Measures The meeting discussed in depth the risk factors in global financial markets such as interest rate hikes and exchange rate volatility following monetary tightening by major economies amid inflation pressure and prolonging war in Ukraine and dealt with both long- and short-term response measures. I. Prepare Buffer for Declining RBC ratio In response to declining RBC ratios following interest rate hikes, the authorities will recognize inclusion of the LAT(liability adequacy test) surplusinto the available capital for the calculation of RBC ratios.The current RBC system based on the difference between the mark to market valuation of assets and historical cost valuation of liabilities results in a decline in RBC ratios in times of rising interest rates as the new method only incorporates losses on valuation of assets into available capital. However, when applying this measure, reductions in insurance liabilities as a result of interest rate hikes are also incorporated as available capital, thereby providing a buffer to the decline in RBC ratios. Insurers will be able to include (a) 40 percent of the LAT surplus to their available capital (b) within the limit of losses on valuation of bonds available for sale. a) In times of interest rate fall, 40 percent of the LAT surplus reserve,which represent an increase in insurance liabilities, is deducted from the available capital. Considering
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