Korean banks stress tested and sound, FSC chairman says

Economy

Published: 07 Sep. 2022, 17:25 Updated: 07 Sep. 2022, 19:27

Korean banks stress tested and sound, FSC chairman says

From third to the left to right, Lee Jong-jin, managing director and co-CEO at HSBC Seoul Securities Branch, Yoon Jong-kyoo, chairman and CEO of KB Financial Group, Lee Seong-kweun, Busan vice mayor for economic affairs, Kim Joo-hyun, chairman of the Financial Services Commission, Cheong Chul-gun, CEO of the Korea JoongAng Daily, Son Tae-seung, chairman and CEO of Woori Financial Group, Yoo Kwang-yeol, president and CEO of Seoul Guarantee Insurance and Park Sung-ho, CEO of Hana Bank. [PARK SANG-MOON]

Financial Services Commission (FSC) Chairman Kim Joo-hyun said Korea's banks have been stress tested and are safe, solid and sound.

"We frequently ask for stress tests, and the banks are sound because they loan to prime customers with good credit ratings," he said. "While it is true that the results of the tests are different, the stress tests are reliable as we have looked into every scenario."

He made the comments during the Korea JoongAng Daily's annual Korea Economic Forum held at Westin Josun Hotel on Wednesday and as economies and markets globally are being buffeted by volatility and as Korea is being put under strain by a falling currency and declining stock and asset prices.

"Banks are a huge portion of Korea's financial industry," he continued. "In times of crisis, the question is whether the banks have good liquidity, which means how long they can hold up when they fail to procure capital from the markets and if they can maintain a reliable level of capital adequacy even when absorbing real estate insolvencies."

Kim said the Korean banks have built up strength with business models that focus mainly on prime customers with high credit scores, allowing them to withstand a certain amount of shock.

"Even if assets values fall, including real estate values, which could become a political and social issue, it would not affect bank soundness as the banks have managed themselves conservatively, including in terms of loan-to-value ratios," Kim said. "And there are additional buffers in place."

When asked about the government's deregulation policy during the annual forum, the FSC chairman said guaranteeing consumer protection and the soundness of the financial companies are prerequisites for regulatory changes.

"The basic direction of the new administration is deregulation, which is to inspire innovation and to change the economic structure so that the private companies play a central role," Kim said. "But for the financial industry, there are higher demands for consumer protection and for the soundness of financial companies."

FSC Chairman Kim Joo-hyun presents the new administration's financial policy agenda to diplomats and leading financial companies during the Korea JoongAng Daily's annual economic forum held at Westin Josun Hotel in Seoul, Wednesday. [PARK SANG-MOON]

The FSC chairman said deregulation is essential as the rapid expansion of digitalization is blurring the lines while business opportunities that were restricted in the past have emerged.

"Existing legislation is based on analog economic activities and did not anticipate a digital environment," Kim said, citing regulations that "segregate" financial companies from non-financial companies.

"There are restrictions, such as on financial companies owning shares in non-financial companies or expanding into non-finance businesses," Kim said. "However, under digital transformation and innovation, there are areas into which banks can expand, such as real estate, which couldn't be imaged in the past as their business models were focused on deposits."

He said the biggest questions related to deregulation is who should control the risks and how should they be controlled.

"Only then is deregulation possible," Kim said. "If we can't defend consumers, deregulation will be impossible."

The FSC chairman spoke on the financial policy agenda of the new administration as the keynote speaker at the Korea Economic Forum, which is in its 16th year.

More than 30 Seoul-based diplomats and dozens of businesspeople attended, including representatives from large financial groups — KB Kookmin, Woori and Hana — and large industrial companies, such as Samsung Electronics.

During the forum, Lee Seong-kweun, Busan Metropolitan Government vice mayor for economic affairs, gave a presentation on the port city's bid to host the World Expo in 2030.

During his presentation, Lee said that BTS will be escorting a delegation from the Bureau International des Expositions (BIE) during its visit in the first half of next year and will make presentations in Paris to BIE member states representatives.

The Korean delegation submitted its candidature dossier to the BIE on Tuesday in Paris.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]