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(LEAD) Gov't to tighten oversight of banks over household debts

All News 11:55 October 10, 2016

(ATTN: UPDATES throughout with comments on housing market, Hanmi scandal, Woori Bank sale; CHANGES photo)

SEOUL, Oct. 10 (Yonhap) -- South Korea's chief financial regulator said Monday that the government will turn the screws on local banks and other lenders extending mortgage loans at a rapid pace, as the government is struggling to curb household debts.

"The government will take strong, specific follow-up measures" to the Aug. 25 announcement aimed at slowing the growth in the amount of household debts, Yim Jong-yong, chairman of the Financial Services Commission (FSC), told reporters.

His remarks came amid public criticism that the latest package of measures against the problem, revolving around controlling the supply of new apartments, is pointless and futile.

Household credit here jumped 11.1 percent on-year to an all-time high of 1,257.3 trillion won (US$1,127 billion) in the second quarter of 2016, boosted by prolonged low interest rates and unrelenting demand for new apartments, according to official data.

Housing prices have continued to rise amid no indication of a fall in borrowing, and many expect household credit to exceed 1,300 trillion won by the end of 2016.

It's one of the biggest problems facing Asia's fourth-largest economy already in trouble over lackluster export growth and domestic spending.

Yim said the authorities will closely monitor the related risk management of financial services companies here.

"The Financial Supervisory Service will carry out a special inspection of financial firms of which mortgage loan growth is excessively speedy," he said, adding it's intended for their risk and financial soundness management.

This file photo shows Yim Jong-yong, chairman of the Financial Services Commission, speaking at a press conference. (Yonhap)

He reaffirmed that tightening financial restrictions on the debt-to-income (DTI) and loan-to-value (LTV) ratios, applied to new house buyers, is not considered for now, as those may lead to a "hard landing" of the housing market and trigger other adverse effects.

The financial regulator also stressed that it's not appropriate to link the recent hikes in home prices with the Aug. 25 announcement designed to tackle the household debt problem.

On the stock price scandal involving Hanmi Pharmaceutical, Yim made clear that it's a legal issue involving the firms rather than a problem in a related stock trading system itself.

The Seoul-listed drugmaker was notified by Boehringer Ingelheim, based in Germany, late last month on its decision to terminate an anti-cancer medicine contract worth more than US$770 million.

Hanmi is alleged to have deliberately delayed the disclosure, prompting massive short selling and profit gains for many investors suspected of having related information before a regulatory filing.

The alleged insider trading case has rekindled a controversy over the short selling practices amid suspicions that some institutions exploited Hanmi's belated public notice.

"It's not a problem associated with the regulatory filing and short selling system itself but that of a possible illegal stock trade," he said. "It's not desirable to abolish or weaken the system admitted in many foreign countries."

The FSC chief remained cautious about whether the government's plan to privatize Woori Bank, a leading lender in South Korea, will be successful despite some positive signs.

A total of 18 potential buyers, both at home and abroad, submitted letters of intent to buy a stake in Woori, including Hanwha Life Co., the nation's second-largest life insurer by assets.

"The large number of potential bidders represents the market's trust in the government's resolve to privatize Woori Bank. But I don't think it guarantees a success (in the sale)," Yim said, adding the government will focus on providing them with sufficient information on Woori until the formal bidding slated for Nov. 11.

The South Korean government owns a controlling 51 percent stake in Woori Bank through the state-run Korea Deposit Insurance Corp., a legacy of the 1998 Asian financial crisis.

It plans to sell off around 30 percent of the bank's stake it owns to multiple buyers by mid-December.


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