Korea Federation of Banks revising primary-debtor group financial improvement guidelines

Lead banks to apply flexible reporting requirements

Move aims to allow strategic industries to carry more debt

42 conglomerates subject to second-half financial structure review

A researcher studies all-solid-state batteries at LG Energy Solution's Future Research Laboratory. [LG Energy Solution]
A researcher studies all-solid-state batteries at LG Energy Solution's Future Research Laboratory. [LG Energy Solution]

Large conglomerate affiliates investing in advanced strategic industries such as batteries will soon face relaxed financial assessment standards from their lead creditor banks, as the banking sector moves to grant industry-specific incentives in its evaluations.

The Korea Federation of Banks has recently been revising its primary-debtor group financial improvement guidelines along these lines, according to financial industry sources Wednesday.

The core change is the introduction of preferential treatment — including bonus points during financial structure assessments — for affiliates engaged in nationally designated core strategic businesses. Under the current system, companies that fall short of financial structure benchmarks receive improvement recommendations from their lead creditor bank and face restrictions such as mandatory ongoing reporting to that bank on financial decisions. The revision is intended to ease those standards and give such companies greater flexibility.

The federation is currently gathering opinions from member banks and is expected to finalize and publish the revised guidelines this month, with immediate application to this year's primary-debtor group assessments. Lead creditor banks are set to conduct full-scale second-half financial structure reviews of the 42 conglomerates designated as primary-debtor groups this year.

The primary-debtor group management system selects large conglomerate groups with heavy borrowings whose financial condition could significantly affect the national economy, evaluates their financial health annually, and — where results fall short — enters into agreements to encourage structural improvement. It functions, in effect, as an annual financial health checkup for major conglomerates conducted by the banking sector. The assessments are carried out by lead creditor banks under banking supervisory regulations, while the federation sets and manages the operational guidelines that serve as the working standard.

The revision was driven by the recognition that advanced industries inevitably require massive capital outlays for large-scale facility construction and research and development, making debt accumulation unavoidable. The intent is to account for industry-specific circumstances rather than applying a simple yardstick based solely on debt levels.

The move also aligns with the government's push to redirect finance toward productive ends, and is intended to foster growth in strategic industries.

Alongside this, the federation is discussing ways to sharpen the criteria for qualitative assessments — those covering items not reflected in financial statements, such as deteriorating earnings trends and financing capacity.

"The revision discussions started in the battery sector and have since expanded to industry as a whole," a banking industry official said. "Different affiliates within a parent group carry different debt ratios by business unit. The idea is to allow companies in industries expected to improve in the future, or those the government has identified as needing national support, to carry more debt — even if their near-term profitability is weak."

At a regulatory review committee meeting of the Korea Federation of Banks held May 27, all eight committee members agreed to revise the guidelines to grant incentives to affiliates in nationally designated core strategic businesses — taking industry-specific characteristics into account in the primary-debtor group assessment criteria — and to sharpen the qualitative assessment standards.

The committee members agreed, however, that effective monitoring would be needed to ensure the revised financial structure assessment approach does not adversely affect banks' asset quality. The federation plans to refine language where interpretive ambiguity exists — such as in references to industry-specific characteristics or inadequate response capacity.

The guidelines revision was decided in close consultation with financial supervisory authorities. "The intent is not to single out advanced industries but to more broadly reflect the characteristics of each industry and give companies more room in financial structure assessments," a financial authority official said. "We expect the assessments to improve in a way that makes them fairer."

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“3억 빌리면 매달 원리금 180만원→200만원” 주담대 7% 시대 차주 부담 커진다 [머니뭐니]

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