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FSC tightens loan rules to prevent insolvencies

May 10,2019
Financial authorities are tightening control over money borrowed from nonbanking financial institutions to reduce the risk of insolvencies.

On Thursday, the Financial Services Commission (FSC) held a meeting with relevant institutions and announced the capping of syndicated loans provided by credit unions, including the Korea Federation of Community Credit Cooperative, to 50 billion in total per real estate project.

The government also said it will ban fresh syndicated loans on apartment projects that do not have deposits equal to 80 percent to 100 percent on the loan amount.

The FSC said the move is to prevent excessive loans to buyers of units in certain popular apartment projects.

Syndicated loans are usually mid- to long-term loans provided by a group of financial institutions.

The financial authority has also newly implemented a target ratio for mortgage loan installment payments originated by savings banks and capital companies. Until now such ratios were only applied to banks, insurance companies and mutual financial institutions.

The goal is to increase the number of installment loans as opposed to loan products where the debtors repay the obligations in a single payment upon maturity.

By 2020, 43 percent of the loan products sold at savings banks must be installment products, while for capital companies it needs to be 10 percent this year, 15 percent in 2020 and 20 percent by 2021.

“Loans by nonbanking financial institutions could become the weak link in our economy, so we are preparing a pre-emptive move against risks, such as potential insolvency,” said Kim Yong-beom, FSC vice chairman.

Kim said the goal of pushing installments is to improve the debt structure so that debtors will not be burdened in having to pay the loans all at once at maturity.


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