Gov. Zhin Woong-seob of the Financial Supervisory Service (FSS) likened the suspension of financial support to SMEs to taking away umbrellas when it’s raining.
Financial institutions should not give loans to “zombie” companies to keep them going while increasing the risks of a default.
The top officer of the FSS wanted to draw a clear line between taking away “financial umbrellas” and strengthening the health of financial institutions by saying that the two policy lines don’t collide, but support each other in harmonious ways.
In emails to all FSS employees on Sept. 24, a day before the Chuseok holidays began, he said some quarters feel the FSS doesn’t have steady policies upon learning the two conflicting reports; one taking away said umbrellas “while it’s raining” and the need for risk management by holding down loans to the financially poor companies. He felt he was proud of his career-long service with the financial authority, but less so now that he has served as the top official of the FSS for some time and learned the management of the financial authority first-hand.
Zhin said the two opposing subjects are not in conflict, but part of the complex integrated arts that FSS has to solve, showing that the FSS has a tough job on its hand at times. The governor was probably speaking for all of the members of the FSS, and it came while he was wishing happy holidays ahead of chuseok.
While meeting with reporters on Sept. 12, the governor said a number of banks have been collecting loans from large business firms as if they were in competition, a practice he compared to taking away one’s umbrella in the rain. He told the reporters that any company, no matter how strong it is overseas, cannot overcome if banks start collecting their loans back from them.
The governor’s statement has been suspected to have caused confusion in the financial industry, with banks getting upset. Some corners of the industry said the statement pushed some banks to be more conservative in their credit policies.
A key commercial bank official said state-run banks have their losses covered with financial support from the government, but private commercial banks don’t have such help from the government — giving them no choice but to be more cautious in their credit policies to keep them healthy and sound.
Even the FSS is divided on the issue. The Corporate Reform Bureau is for keeping the “umbrellas in the rain,” while the Audit Bureau is for taking back the umbrellas, even during in tough times, to prevent defaults of financial institutions, as they have to hold the financial institutions responsible for any defaults on loans.
A high-ranking FSS official speculated that Gov. Zhin could have a hard time soothing the financial community, which was somewhat were taken aback by his statement. Zhin explained that his statement “meant that the financially-troubled companies should continue to get loans if they have a good chance to overcome the problems and survive instead of taking away the umbrellas.”
The FSS plans to pick out SMEs in serious financial problems and conduct a heavy restructuring. They went ahead with the plan and picked out some 2,000 SMEs for restructuring, around 400 more than the number of SMEs selected for restructuring last year.
