The top financial regulator on Friday called on local savings banks to quickly take care of real estate project financing (PF) loans, also highlighting their excessive exposure to such loans compared with other lenders.

In a meeting with the heads of eight savings banks and other related agencies, Kim Byoung-hwan, chief of the Financial Services Commission (FSC), insisted the banks are in a “serious situation” where their very credibility is being challenged or questioned due to problems caused by real estate PF loans.

“Kim said he understands the difficulties facing the savings banks in fulfilling their role as financial service providers for people in local areas amid growing risks stemming from the economic slowdown and deteriorating debt repayment capacity of the people,” the FSC said of the meeting.

He, however, “stressed that there is a need to objectively consider whether the difficulties they now face are due to their decisions to make easy money by focusing on the property market instead of focus
ing on innovations that would have allowed them to better play their proper role.”

The financial authorities reported earlier that nearly 10 percent, or 21 trillion won (US$15.7 billion), out of the total 216.5 trillion won extended in real estate PF loans and loan guarantees have been found “risky” and subject to restructuring.

The report also showed savings banks had the second-highest exposure to such risky loans with 4.5 trillion won, following 9.9 trillion won extended by mutual trust funds, while local commercial banks had a total exposure of only 400 billion won.

The FSC chief reiterated the need for the local savings banks to quickly and thoroughly manage their failing PF loans.

“Savings banks must make sure to implement the restructuring plan based on the government report in at least six months by getting rid of failing projects through all means possible, including auctions, if necessary,” Kim was quoted as telling the meeting.

He also called on the banks to prepare for possible losses in the
process by preemptively boosting their loss reserves to prevent any liquidity problems, according to the FSC.

Source: Yonhap News Agency