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Feb 22, 2021
- FSC to Strengthen Liquidity Management of Specialized Credit Finance Companies
- The FSC announced a set of measures aimed at strengthening the liquidity management of specialized credit finance companies on February 22. The measures include (a) establishing best practice guidelines, (b) strengthening disclosure requirements and (c) gradually reducing the maximum leverage on credit finance (non-credit card) businesses. Background Specialized credit finance businesses are lenders without deposit-taking functions.They usually finance their business through borrowings or the issuance of corporate bonds and asset-backed securities (ABS). In particular, their heavy reliance on debt finance, about 73.9 percent of their financing,creates a problem of risk transfer to financial institutions holding their corporate bonds, especially if credit finance companies face solvency problems. In this regard, there have been concerns about credit finance companies turning into a conduit of systemic risk in times of an unexpected economic shock such as COVID-19. Therefore, liquidity problems of credit finance businesses can pose a risk not only to the borrowers with mid-to-low credit backgrounds but also to the real economy as they may cause a drop in consumption and corporate facility investment. Key Measures I. Best Practice Guidelines on Liquidity Management The best practice guidelines on specialized credit finance companies liquidity management will be introduced for implementation beginning in April this year. - (Target) Bond issuing credit finance companies and those with more than KRW100 billion in total assets will be subject to the new guidelines. - (Role of Board and Management) Board of directors should oversee the establishment and operation of liquidity management strategies and the company management should prepare specific management process and criteria and regularly report to its board members. - (Liquidity Risk Indicators) Major liquidity risk indicators include corporate bond maturity distribution, liquid asset ratio, short-term debt ratio, etc.
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Feb 08, 2021
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Feb 05, 2021
- Rules Change Announced for Insurance Businesses Specializing in Small-sum and Short-term Policies
- The FSC announced the revisions to the Enforcement Decree of the Insurance Business Act on February 4, setting entry requirements for the establishment of insurance businesses specializing in small-sum, short-term policies and introducing measures to improve the soundness of the insurance industry. The revisions will be put up for public notice for forty days until March 17, 2021. Key Revisions (Small-sum Shor-term Insurance Policies) The minimum capital requirement for setting up an insurance business specializing in small-sum, short-term insurance policies will be set at KRW2 billion. Small-sum, short-term insurance coverages will be allowed in all insurance coverage areas where applicable with a coverage term of one year, premiums of up to KRW50 million and the insurers annual gross premium revenues up to KRW50 billion. (Requirement for External Evaluation on Policy Reserves) Insurance businesses with total assets of KRW1 trillion or more will be required to have external actuaries approve the appropriateness of their policy reserves. This requirement will also be applied to the insurers with less than KRW1 trillion in total assets but whose policy coverage types are considered as essential for them to ensure the payout capabilities. The external actuaries will be entitled to a right to request relevant information from insurance companies. To guarantee impartiality, external evaluations from the same institution will not be allowed for four consecutive years. (Rules on Subsidiaries) The revisions will clearly indicate that insurers will be permitted to own MyData and health care-related businesses as subsidiaries. Expectation The authorities expect that the revisions will help promote the development of diverse types of small-sum, short-term insurance products for consumers according to their individual lifestyle, improve the soundness and competitiveness of insurance businesses and encourage insurers to boost investment and cooperation in new business areas, su
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Feb 03, 2021
- FSC Announces Decision on Short-selling Ban
- FSC Chairman Eun Sung-soo held a press briefing on February 3 and announced the decision to extend the short-selling ban until May 2, 2021 and to allow a partial resumption of short-selling from May 3 on KOSPI 200 and KOSDAQ 150 stocks. Summary of Chairmans Remarks (FSCs Decision) The FSC has decided to extend the current short-selling ban until May 2 this year and allow a partial resumption from May 3 on KOSPI 200 and KOSDAQ 150 stocks. The partial resumption is intended to minimize the impact on markets, given these stocks have large market caps and liquidity so that the resumption of short-selling would have limited impact on stock prices. Meanwhile, the short-selling ban will remain on the rest of stocks (2,037 stock items) with further decisions on the resumption of short-selling on these stocks to be made later based on market conditions. The resumption date of May 3 has been decided to give the Korea Exchange (KRX) some time for system development and testing. With the revised Financial Investment Services and Capital Markets Act scheduled to go into effect on April 6 this year, with stronger penalty rules for illegal short-selling activities, there will be no issue of a legislative gap. Today, the FSC commissioners raised the same voice on the need to improve the short-selling system as there are investor demands for more transparency and fairness in the short-selling system. (Improving the Short-selling System) Prior to the May 3 partial resumption, the FSC will work on measures to improve the short-selling rules. First, The FSC will work to ensure the detection of and punishment on illegal short-selling activities. With the revised Financial Investment Services and Capital Markets Act, short-sellers will be required to keep their securities lending data for five years and the securities firms will be required to tighten monitoring of illegal short-selling activities. The securities firms are currently in the process of getting their systems ready according
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Jan 28, 2021
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Jan 26, 2021
- Financial Authorities to Work on Risk Management and Support Transition to First-mover Economy
- Vice Chairman Doh Kyu-sang held the 33rd financial risk assessment meeting via teleconference on January 26 to discuss key risk factors in 2021 and review the implementation of the COVID-19 lending support for SMEs and small merchants. The following is a summary of Vice Chairman Dohs remarks. (Risk Management) With the pandemic response measures put in place, the public and private sector debt increased throughout the world and asset prices have seen a rapid acceleration with abundant market liquidities. The accumulation of excessive debt may pose a risk to the economic recovery, and the financial authorities will continue to work on the management of the household and corporate debt. The FSC plans to introduce measures to more effectively manage household debt in the first quarter, which will focus on the application of DSR rules to individual borrowers. On corporate debt, the authorities will set up a monitoring system to check the status of corporate financing across different industries. Stock prices have gone up due to strong trading activities by retail investors. However, there are possibilities of a rising market volatility and the authorities will closely monitor the conditions in the stock markets. In addition, the authorities will work to strengthen the oversight of illegal and unfair trading activities including illegal short selling, while preparing tax incentives for longer-term stock investment. The FSC will also soon introduce measures to improve the competitiveness of the publicly offered funds to make the process more investor-oriented. (Channeling Funds to Productive Sectors) The authorities will work to ensure that the abundant market liquidities are flowing into productive sectors and toward the vulnerable groups in need. In this regard, the FSC will work on a seamless implementation of its policy on New Deal fund, which will be raised up to KRW4 trillion in 2021 with its first investment project hoped to be announced in March. In April, another
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Jan 19, 2021
- FSC Announces 2021 Work Plan
- The FSC unveiled its work plan for 2021 on January 18, highlighting the four areas of policy tasks as follows(a) maintaining the COVID-19 financial support and managing potential risks, (b) supporting K-New Deal initiatives for a green and digital economy, (c) promoting financial innovation and digital finance and (d) strengthening financial consumer protection and support for vulnerable groups. KEY ACHIEVEMENTS IN 2017-2020 A. STEADY MAINTENANCE OF FINANCIAL STABILITY AMID COVID-19 PANDEMIC Over the past four years, the FSC has focused on maintaining stability in the financial system as its utmost policy priority. In the wake of the COVID-19 pandemic, the FSC responded by quickly drawing up and providing financial support packages worth KRW175 trillion-plus and worked to prevent the crisis from spreading further into the financial markets. B. SUCCESSFUL CHANNELING OF FUNDS TO PRODUCTIVE SECTORS The FSC has worked to expand the supply of capital into more productive sectors by introducing innovative ways to assess corporate credit and through revisions to the relevant capital markets rules. In addition, the public sector has provided equity-based funding sources via growth ladder fund and other government-backed financing channels. C. ACTIVE PROMOTION OF COMPETITION AND INNOVATION IN FINANCIAL INDUSTRY The FSC has granted new business licenses to internet-only banks, insurance firms and real estate trust companies based on an industry-level competition assessment. In order to promote and expand financial innovation, the FSC has also worked to establish the necessary infrastructures, including the regulatory sandbox, open banking and MyData in financial services. D. ENHANCED INCLUSIVENESS VIA MICROFINANCE SUPPORT AND CONSUMER PROTECTION The FSC has worked to reduce the interest payment burdens of lower income households by lowering the maximum interest rate that can be charged on loans from 24% to 20%. E. IMPROVED FAIRNESS BASED ON RULES AND PRINCIPLES The FSC has al
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Jan 13, 2021
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Dec 21, 2020
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Dec 09, 2020
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Nov 26, 2020
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Nov 06, 2020
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Nov 03, 2020
- FSC to Work on COVID-19 Recovery, Cultivating Innovative Firms and Ensuring Market Stability
- The FSC held the 28th financial risk assessment meeting via teleconference on November 3, chaired by Secretary General Kim Tae-hyun. During the meeting, officials discussed the progress in implementing the COVID-19 financial support including the small merchant support program and market stabilization measures.(CURRENT ECONOMIC AND MARKET SITUATION) Recent economic indicators suggest that the Korean economy is on a track to recovery. The economy grew 1.9 percent in the third quarter while industrial production, consumption and investment all increased in September. Consumer sentiment and the Business Survey Index rose in October as well. Domestic financial markets have also shown signs of stability. The volume of corporate bond, CP and short-term debt issuances has grown in September while credit spreads have been falling steadily, backed by the government’s efforts of launching the bond market stabilization fund and the SPV aimed at purchasing low-rated corporate bonds and CP. However, there still exist uncertainties surrounding the US presidential election and the scale of economic stimulus measures as well as concerns over a possible second wave of virus outbreaks. Thus, the government will closely monitor risk factors and take preemptive measures when necessary.(PROMOTING INNOVATION THROUGH STRONG FINANCING SUPPORT) Promoting the development of new technologies by innovative businesses is crucial to ensure a further progress in the post-pandemic era. The recently published banking sector technology assessment result for the first half of 2020 shows that the banking sector has been steadily working to improve their own technology capabilities and providing lending support to innovative businesses while serving as a conduit of the government’s emergency financial support programs. In addition, the best practice guidelines on sanctions exemptions for banks, established by the Korea Federation of Banks on October 26, provides more consistency in line with the ru
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Oct 28, 2020
- Government to Closely Monitor Market Risks
- The FSC held the 27th financial risk assessment meeting via teleconference on October 28, chaired by Secretary General Kim Tae-hyun. During the meeting, officials discussed issues surrounding the US presidential election, recent trends in the corporate bond and CP markets, anticipated discontinuation of LIBOR and other market conditions.(RISK MONITORING) Market experts noted that the US presidential election, soaring global asset prices and the possibility of an interest rate hike and currency appreciation as potential external risks to the Korean economy. First, uncertainties surrounding the outcome of the US presidential election and the ensuing policy disparities on COVID-19 stimulus, tax policy and the recovery pace pose risks to the economy. Second, as asset prices have seen a steep rise, price volatility may pose another risk. Third, due to expectations of stimulus measures, interest rates have gone up in advanced economies, and depending on the movement of the dollar and yuan, there exist downside currency risks in the Korean economy.(CORPORATE BOND CP MARKETS) Despite the general recovery trend in corporate bond and CP markets due to the government’s market stabilization efforts, there still exist disparities between low-rated and blue chip companies as well as between the corporate bond market and short-term money markets. The continuous decline of the spread of low-rated corporate bonds since June is a positive sign. However, the pace of the decline has been slow compared to high-rated bonds with the volume of total issuance yet to reach the level seen in the previous year. On the other hand, the low-rated CP and short-term debt issuance amount has recovered to a comparable level from the previous year. The FSC will continue to closely monitor corporate bond and CP markets and take stabilization measures using an SPV when deemed necessary.(DISCONTINUATION OF LIBOR) With regard to the anticipated discontinuation of LIBOR from 2022, financial institutions
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Oct 20, 2020
- Vice Chairman Stresses Importance of Steady Financial Support for Small Businesses
- Vice Chairman Sohn Byungdoo held the 26th financial risk assessment meeting via teleconference on October 20 to discuss the implementation status of the COVID-19 emergency financial support programs.The following is a summary of Vice Chairman Sohn’s remarks.(CURRENT ECONOMIC CONDITIONS) As some of the key economic indicators have shown signs of an improvement recently, the IMF revised up its global growth forecast from a 5.2 percent drop to 4.4 percent decline. The Korean economy also has been on a recovery path, as exports rebounded in September for the first time since the outbreak of the COVID-19. The recently adjusted social distancing rules and the government’s fiscal efforts are expected to help boost domestic demand. With a resurgence of COVID-19 being the biggest threat to economic recovery, financial institutions should closely adhere to the safety and preventive measures.(STEADY SUPPORT FOR SMALL MERCHANTS) The structural changes caused by the COVID-19 pandemic present both challenges and opportunities. Although there are positive effects, such as a transition toward a digital and green economy, heavier burdens may be placed on the vulnerable groups including small merchants as some expect to see a K-shaped recovery. Since the improvements to the second round of financial support program for small merchants became available on September 23, the provision of lending support to small merchants has continued to increase. As this program is backed by guarantees from the Korea Credit Guarantee Fund, it is essential that lending support is made available to small merchants with different credit backgrounds, including those with unfavorable credit history.With growing numbers of small merchants experiencing business closures, it is necessary to keep in place a policy that supports their comeback. Since last November, the FSC has made available a one-stop consulting program for self-employed small business owners who have experienced business closures due to t
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Oct 19, 2020
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Oct 19, 2020
- FSC Holds Kick-off Meeting to Root Out Unlawful Trading Activities in Stock Markets
- Vice Chairman Sohn Byungdoo held a kick-off meeting of the task force on the prevention of unlawful and unfair trading activities in stock markets on October 19. The task force will operate until the end of March 2021 and regularly report its implementation status on a monthly basis.The following is a summary of Vice Chairman Sohn’s remarks.BACKGROUNDDue to the rapid spread of COVID-19 around the world, domestic stock markets plunged at the beginning of the year. However, stock prices quickly recovered to the pre-pandemic level backed by the strong fundamentals of the Korean economy, prompt implementation of the emergency financial support programs and the effective K-quarantine measures. Moreover, an upsurge in the trading volume by retail investors also contributed to the quick market recovery. The retail investors’ growing interest in stock investment is a positive sign. However, without a fair market order, investors’ trust in the market may crumble and the recent investment boom may end up as a short-lived one, preventing a further advancement of stock markets.With abundant market liquidities flowing into stock markets, it has become all the more necessary to pay attention to the growing concerns about illegal and/or unfair trading activities in the stock markets.POTENTIAL ISSUESThe recent trends in stock market activities reveal the following three potential problems. First, due to the rising market volatility, there are growing risks of unfair trading activities surrounding particular groups of stock items, such as COVID-19 and “untact” sectors. In addition, as the period of short-selling ban was extended until March 15, 2021, it has become necessary to closely monitor illegal short sale activities during this period, including naked short-selling. Second, unfair trading activities including price manipulation are being carried out in a more organized and complex manner. However, the current system from the detection to punishment stage takes a long
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Oct 14, 2020
- Government Reviews Financial Policy Agenda for Post-pandemic Era
- Vice Chairman Sohn Byungdoo held the 25th financial risk assessment meeting via teleconference on October 14 and reviewed financial policy tasks for the post-pandemic era. The policy agenda focuses on four key areas—(a) supporting innovation-driven growth, (b) promoting digital finance, (c) expanding support for inclusive finance and (d) ensuring stability in the financial system.The following is a summary of Vice Chairman Sohn’s remarks.(NEED TO PREPARE FOR POST-PANDEMIC ERA) In response to the pandemic-induced economic shocks, the government has provided emergency financial support for small merchants and businesses. However, the disruption caused by COVID-19 may be just beginning. With global supply chains being reshuffled, contactless, medical, bio and green industries are becoming more prominent. This type of restructuring is also inevitable in the financial industry. There are also growing concerns about a deepening wealth gap between the haves and the have-nots. Potential risks in financial sectors, such as growing appetite for riskier and higher yield products as well as rising debt, have been accumulating. These are all the reasons that financial policies should account for the preparation of the post-COVID-19 era.(FINANCIAL POLICY AGENDA FOR POST-PANDEMIC ERA) The policy agenda announced on July 24 includes (a) supporting innovation-driven growth, (b) promoting digital finance, (c) expanding support for inclusive finance and (d) ensuring stability in the financial system. First, with regard to the first policy agenda, the government has been providing targeted financial support to innovative and promising businesses. Under the government-wide initiative to develop a thousand innovative firms, a total of thirty-two businesses have been selected with KRW211.1 billion in lending support being provided to sixteen of them. In November, more than 168 additional firms in the future car, biochemical and high-tech medical device industries are expected to be se
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Oct 07, 2020
- Vice Chairman Discusses Importance of Steady Financial Support for SMEs and Small Merchants
- Vice Chairman Sohn Byungdoo held the 24th financial risk assessment meeting via teleconference on October 7 and discussed the implementation status of COVID-19 financial support programs and other market conditions.The following is a summary of Vice Chairman Sohn’s remarks.(COVID-19 FINANCIAL SUPPORT) The latest COVID-19 emergency support programs announced in September have been operating smoothly. The second round of emergency loan program for small merchants began to provide support on September 23, with its recently increased lending cap and broadened recipient base. Since the improvements became effective, some KRW350 billion worth of loans were issued within a week with interest rates also falling compared to earlier periods. More numbers of small merchants chose to apply via contactless channels, which helped avoid long lines at lending institutions and prevent the spread of the virus.The hardship experienced by SMEs amid a persistent pandemic underscores the importance of having a strong and tightly-woven financial support system to help address their liquidity shortages. In this regard, the government has improved existing programs according the needs of the SMEs and middle market enterprises, thus responding to changing market conditions in a more flexible way. In terms of the COVID-19 P-CBO support, the government has decided to increase lending caps for companies and lower underwriting ratios for subordinated debt. These changes will begin to be applied with P-CBO issuances in October. In addition, the government has significantly improved the lending support program specifically targeted at the pandemic-hit SMEs and middle market enterprises on September 24, doubling lending caps, offering better interest rates and extending the support period.(HOUSEHOLD LOANS) In September, the growth of household loans from five major banks declined compared to the previous month. In particular, credit loans fell by about a half due to effective management by banks.
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Sep 23, 2020
- Vice Chairman Pledges to Stay Alert for Potential Risks in Financial Markets
- Vice Chairman Sohn Byungdoo held the 22nd financial risk assessment meeting via teleconference on September 23 and discussed market conditions and issues concerning household loans, soundness of financial institutions and corporate credit situation with relevant authorities.The following is a summary of Vice Chairman Sohn’s remarks.(FINANCIAL MARKET CONDITIONS) The corporate bond and short-term money markets showing signs of liquidity crunch at the end of March have largely improved due to prompt market stabilization measures taken by the government. Market experts forecast that the current stability will continue throughout the end of September given sufficient liquidity in the market. However, as there are potential risks related to COVID-19, relevant authorities should continue to closely monitor markets. The financial authorities will work to prevent an end-of-quarter credit crunch through various market stabilization measures already put in place.With regard to stock market conditions, there are possibilities of rising volatility given uncertainties surrounding the US presidential election, US-China relations, etc. There are also concerns about a growing number of retail investors taking out loans to invest in stocks including in overseas stock markets where there may not be adequate information available to them. As such, retail investors should be well aware of the risks involved in overseas stock investment, and financial institutions should make sure that investor protection measures are closely being observed in this regard.(HOUSEHOLD LOANS) The recent spike in household loans was caused in part by rising demand for loans by those undergoing difficult situations. However, a recent trend reveals that high income earners with high credit scores are increasingly turning to credit-based loans. As such, lending institutions should closely review borrowers’ debt service capabilities and monitor concentration of excessive liquidity in property markets, etc.(S
