South Korean financial authorities extended regulatory relief on mandatory lending ratios for savings banks until the end of this year to support continued disposal of non-performing project financing (PF) assets. The Financial Supervisory Service (FSS) recently issued a non-action opinion letter maintaining the relief measure through December 31, allowing savings banks to violate mandatory lending ratios by up to 5 percentage points without administrative penalties when loan volumes decrease due to write-offs and sales of non-performing loans. This marks the continuation of relief measures first introduced in May 2024, as savings banks face ongoing challenges meeting lending ratio requirements while disposing of troubled PF loans to improve asset quality. The extension reflects authorities' assessment that PF normalization work must continue despite declining overall exposure, as delinquency rates and troubled loans have increased.
FSS Extends Mandatory Lending Ratio Relief Through December 31
According to financial industry sources on the 6th, the FSS decided to maintain the regulatory relief measure through the end of this year via a recent non-action opinion letter regarding mandatory lending ratio regulations. Under current Mutual Savings Bank Act provisions, savings banks must maintain certain lending ratios to individuals and small-to-medium enterprises within their operating regions to preserve their function as regional financial institutions. The relief allows savings banks whose loan volumes decrease due to non-performing loan write-offs and sales to violate the mandatory lending ratio by up to 5 percentage points without facing administrative action until December 31. Savings banks failing to meet the ratio requirements must submit explanations of the shortfall causes and future management plans to the FSS.
PF Exposure Declines While Delinquency Rate Rises to 4.65%
As of the end of March, total PF exposure stood at 169.8 trillion won, down 4.5 trillion won from the end of last year. However, the PF loan delinquency rate increased to 4.65%, up 0.77 percentage points from year-end, while watch-list and troubled loan volumes reached 16.4 trillion won, an increase of 1.7 trillion won during the same period. The FSS cited in its non-action opinion letter the "Improvement Plan for Savings Bank Delinquent Loan Management for Mutual Survival with Vulnerable Borrowers" announced in January last year and the extension policy for financial regulatory relief announced in November last year as background for this measure. Financial authorities determined that soundness burdens persist as delinquency rates and troubled loans increase despite the declining trend in PF exposure, necessitating continued PF normalization efforts.
Authorities Plan Official Announcement in July
The FSS stated it decided to extend the regulatory relief measure again considering ongoing PF project restructuring and disposal work, and will officially announce the details in July. A senior financial industry official stated that the core of PF soft landing is supplying funds to normal projects while swiftly disposing of troubled projects, adding that alleviating regulatory burdens arising during savings banks' active disposal of non-performing loans can accelerate soundness recovery and PF normalization. Industry observers expect this measure will allow savings banks to focus on PF non-performing loan disposal and soundness improvement rather than forcibly expanding new loans to meet mandatory lending ratios.
FAQ
What did South Korean financial authorities do regarding savings bank lending ratios?
The Financial Supervisory Service extended regulatory relief on mandatory lending ratios for savings banks through December 31, allowing them to violate the ratio by up to 5 percentage points without administrative penalties when loan volumes decrease due to non-performing loan disposal.
Why did authorities extend the lending ratio relief for savings banks?
Authorities extended the relief to support savings banks in disposing of non-performing project financing loans and improving asset quality, as loan volume reductions from write-offs and sales make it difficult to meet mandatory lending ratio requirements during the soundness recovery process.
