Banks to face 20% cap on real estate PF credit exposure next year

FX settlement accounts excluded from major shareholder credit calculations

Internal control weighting for special banks raised to 10%

The Financial Services Commission office at Government Complex Seoul in Jongno-gu, Seoul [Yonhap]

Financial regulators will cap banks' real estate project financing credit exposure at 20 percent of total credit exposure, while expanding the scope of in-person services that internet-only banks may provide in unavoidable circumstances. Deposits held in foreign currency settlement accounts will be excluded from major shareholder credit calculations, and the weighting of internal control assessments for special banks will also be raised.

The Financial Services Commission announced Wednesday that it had pre-notified a proposed amendment to the Banking Business Supervision Regulation incorporating these changes.

Under the amendment, banks will be prohibited from allowing real estate project financing credit exposure to exceed 20 percent of their total credit exposure — a new ceiling designed to reduce excessive concentration in a single sector and limit the impact of project financing insolvencies on financial institutions' soundness. The regulation takes effect Jan. 1 next year, and banks that already exceed the cap at that time will be given a three-year grace period to bring their ratios into compliance.

Although overall real estate project financing exposure has been declining, financial soundness concerns persist. According to the FSC, total project financing exposure stood at 169.8 trillion won ($125 billion) at the end of March, down 4.5 trillion won from 174.3 trillion won at the end of last year. Over the same period, however, the project financing loan delinquency rate rose from 3.88 percent to 4.65 percent, an increase of 0.77 percentage points.

The amendment also spells out the specific circumstances in which internet-only banks — which are generally prohibited from conducting face-to-face business with customers — may engage in in-person services. These include consulting with borrowers during the management or recovery of delinquent loans, processing debt restructuring, verifying original documents to check for forgery or alteration of materials submitted remotely, and inspecting the condition or value of collateral.

In-person handling will also be permitted for confirming facts or delivering outcomes at a customer's request, issuing or receiving documents, and investigating the ownership and occupancy status of collateral or leased properties. The changes follow the FSC's decision in July to allow internet-only banks to conduct in-person services in unavoidable cases.

Deposits that domestic banks hold in foreign currency settlement accounts opened at overseas correspondent banks will no longer count toward the calculation of credit exposure limits for major shareholders. Under the current rules, such deposits are included in credit exposure figures, raising the risk that some banks could approach or breach their major shareholder credit limits when overseas payment demand surges. The FSC said it decided to exclude these accounts because they serve the purpose of facilitating overseas payments for domestic companies, not providing support to major shareholders.

The management assessment framework for special banks will also be revised. Internal control, currently evaluated as a subcategory under risk management, will be separated into a standalone assessment category, and its weighting will be raised from 3.2 percent to 10 percent. The move follows a similar change already applied to commercial banks and is intended to strengthen accountability by evaluating internal control standards independently.

The proposed amendment will undergo a public comment period through Nov. 9 before taking effect following a vote by the FSC. The real estate project financing credit exposure cap will apply from Jan. 1 next year, in line with rules being introduced across other financial sectors.

rim@heraldcorp.com