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    FSC Korea Details Policy Measures to Support Recovery from Pandemic

    February 03, 2021

    FSC Korea announced additional lending assistance for small and medium-size enterprises (SMEs) and issued recommendation for dividend distributions by banks. Additionally, the Financial Industry Bureau of FSC Korea announced the policy agenda for this year, which aims to support COVID-19 recovery and ensure financial stability while seeking innovation in the financial industry. The key policy tasks include bolstering pandemic response and risk management, improving the role of region-based and microfinance institutions, strengthening the competitiveness of the financial industry, and facilitating digital innovation in the financial industry.

    The key policy tasks of Financial Industry Bureau of FSC Korea include the following:

    • Measures for a gradual rollback of the pandemic-related temporary financial support programs. This includes introducing, in February 2021, plans for loan maturity extension and deferment of payments currently in place to cope with COVID-19 pandemic. It also includes reviewing whether to extend the period of the temporary deregulatory measures as well as requiring financial institutions to maintain a sufficient level of loss absorbing capacity through loan-loss provisions and dividend limits.
    • Implementation of IFRS 17 on insurance contracts. This includes conducting an impact analysis on insurance companies regarding the implementation of IFRS 17 and Korean-Insurance Capital Standards (K-ICS) from 2023. Another task involves ensuring a seamless implementation of K-ICS through a gradual application and by allowing insurance companies’ capital expansion. It also covers introducing revisions to the Insurance Business Act (in second half of 2021) to prepare for the implementation of IFRS 17 from 2023.
    • Seek to support financial institutions in making adjustment to digital transition. This involves operating a taskforce made up of financial authorities and relevant industry officials to promote discussions and gather opinions to deal with the issue of branch office closures of financial institutions.
    • Enhancing the pricing system of financial services. This includes working to further improve the credit scoring system model of savings banks to enable the provision of loans at a lower interest rate.
    • Sound management of financial institutions. This involves regularly checking the relationship between the savings banks and their large shareholders to prevent inappropriate management practices and encouraging the entrance of new qualified entities into the credit finance market.
    • Promotion of digital Innovation in financial industry. This covers promoting convergence between finance and information and communication technology (ICT), pursuing regulatory reforms to promote convergence and synergy among financial institutions, fintech firms, and digital platform service providers, and expanding the availability of internet-based and contactless financial services.

    In a separate statement, FSC announced the availability of additional lending assistance for small merchants and SMEs. Loans will be provided to the small merchants and SMEs experiencing hardships with an additional interest rate reduction of up to 0.9 percentage points. Guarantees will be available for the pandemic-hit businesses. The lending programs will be available from the Industrial Bank of Korea, Korea Development Bank, and Korea Credit Guarantee Fund until February 26, 2021. FSC has also recommended banks to temporarily limit dividends within 20% of their net profits, until the end of June 2021; this is because it is deemed necessary to maintain the loss-absorbing capacity of banks in response to the COVID-19 pandemic. The recommendation is based on the results of the stress tests performed on eight bank holding companies and six non-holding banks by FSS between October 2020 and December 2020. 


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    Keywords: Asia Pacific, Korea, Banking, Insurance, COVID-19, IFRS 17, Insurance Contracts, Loan Guarantee, Regulatory Capital, Dividend Distribution, Credit Risk, Loss Absorbing Capacity, Fintech, FSC

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