Restructuring procedures for specialized credit finance companies, such as card and capital companies, whose asset soundness has deteriorated will be greatly streamlined. The financial authorities will conduct asset-liability assessments of insolvent specialized credit finance companies and, after imposing prompt corrective action, shorten the deadline for submitting management improvement plans from the current two months to 15 days.
According to the financial sector on the 4th, the financial authorities are pushing to revise the Supervision Regulations on Specialized Credit Finance Business with these measures. The financial authorities said they will revise the relevant regulations to address issues such as the declining feasibility of normalizing insolvent specialized credit finance companies due to ineffective prompt corrective action procedures.
The amendment establishes a legal basis to designate specialized credit finance companies as insolvent financial institutions. Currently, banks, insurers, securities firms, and savings banks can be designated as insolvent financial institutions under the Act on the Structural Improvement of the Financial Industry, but specialized credit finance companies have not been included. Once designated as an insolvent financial institution, the company comes under the supervision of the financial authorities.
The financial authorities will conduct asset-liability assessments of specialized credit finance companies whose soundness has deteriorated and designate them as insolvent financial institutions. If necessary, they will also carry out on-site due diligence at those companies. The asset-liability assessment criteria are: ▲ when asset soundness has deteriorated and the governor of the Financial Supervisory Service determines there is a concern that liabilities will exceed assets ▲ when the adjusted capital adequacy ratio is 1.5% (below 2.5% for credit card companies) ▲ when the comprehensive rating in the management status evaluation is Grade 5 (risky), among others. Currently, the guidance thresholds for the adjusted capital adequacy ratio set by the Financial Supervisory Service are 8% for card companies and 7% for capital companies.
The management improvement process has also been streamlined. Typically, prompt corrective actions are divided into three stages—recommendation, requirement, and order—depending on financial condition. Specialized credit finance companies that receive a management improvement recommendation or requirement from the financial authorities must submit a management improvement plan within 15 days, including measures for capital raising and securing liquidity. Previously, they had up to two months to submit.
The procedure granting a three-month reimplementation period to specialized credit finance companies that fail to carry out the financial authorities' management improvement measures has been removed. In such cases, escalated prompt corrective action can be imposed immediately. When moving from a management improvement recommendation to a management improvement requirement, companies are subject to stronger measures, such as closure of business branches, downsizing of organizations, disposition of subsidiaries, and requests to replace executives.
Among capital companies, quite a few are posting losses due to insolvent real estate project financing (PF) and slowing growth. As of the end of June this year, total PF loans at all capital companies stood at 19.8 trillion won, accounting for 56.4% of their equity capital. CNH Capital became the first among capital companies to receive prompt corrective action at the end of Oct. last year.