Financial Services Commission Announces 20% Cap on Banks' Real Estate PF Credit Extensions

Financial Services Commission Announces Notice of Revised Bank Supervision Regulation
Expansion of Face-to-Face Operations at Internet-Only Banks

Starting next year, banks' credit exposures related to real estate project financing (PF) loans will be limited to within 20% of their total credit exposures.

Additionally, internet-only banks will be permitted to conduct face-to-face operations if it is unavoidable for tasks such as the management of overdue bonds or debt restructuring consultations, which require verification of original documents.

The Financial Services Commission announced on September 30 that it will issue a notice of changes to the 'Regulations on Supervision of Banking Business' with these details, open for public comment until November 9.

Financial Services Commission

The amendment introduces a 'credit exposure limit for real estate PF' under the management guidance ratio in the banking supervision regulations, and restricts banks' credit exposures related to real estate PF loans to within 20% of their total credit exposures.

The real estate PF credit exposure limit regulation will come into effect on January 1 of next year. Banks that exceed the limit at the time of implementation will be granted a grace period of up to three years to bring their ratios within the required range.

This is a follow-up measure to the "Real Estate PF Soundness System Improvement Plan" announced jointly by relevant ministries in December of last year. At that time, the government introduced real estate PF limit regulations by business sector to prevent excessive risk concentration and exposure to real estate PF and to improve soundness in the sector.

The scope of permissible face-to-face operations for internet-only banks will also be specified in further detail. While in principle, face-to-face operations are currently prohibited, exceptions will be allowed for unavoidable circumstances such as debtor guidance, consultation, negotiation, and debt restructuring consultations.

Certain amounts in foreign currency settlement accounts operated for overseas payments will be excluded from the calculation of large shareholders' credit exposure limits.

Currently, banks can extend credit to large shareholders within 25% of their equity capital or within the shareholding ratio of the large shareholder. However, deposits in foreign currency settlement accounts are also included in credit exposure, which could make it difficult for some banks to comply with the limit.

Considering that foreign currency settlement accounts are intended to support overseas payments for domestic companies, the FSC decided to exclude the balance of funds in foreign currency settlement accounts that have not exceeded three business days from the date of deposit from the credit exposure calculation.

For specialized banks, the management status evaluation system will be reorganized to strengthen the internal control assessment.

Currently, internal control (I) is a subcategory under risk management (R), but it will now be separated as an independent section, and its evaluation weight will be significantly increased from 3.2% to 10.0%.

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