Home Supervision Financial Institutions Prudential Regulation and Supervision General Restrictions and Prohibitions on Business Activities

General Restrictions and Prohibitions on Business Activities

Nonbank financial companies

Mutual Savings Banks

Limits on Credit Extension

Mutual savings banks are subject to credit extension limits that are similar in purpose to banks. For a single counterparty, credit extension may not exceed 20 percent of the mutual savings bank's capital. An additional limit of KRW10 billion is applicable where the counterparty is a corporate borrower (KRW5 billion for an individual business owner and KRW800 million for an individual borrower).

Moreover, the aggregate amount of credit extensions to a same counterpartyㅡa counterparty and any group of connected counterpartiesㅡmay not exceed 25 percent of the mutual savings bank’s capital. Credit extension to a single counterparty exceeding 10 percent of the capital is deemed a large credit extension, and the aggregate amount of such large credit extensions must be less than five times the amount of capital.

Limits on Credit Extension by Mutual Savings Banks Belonging to a Business Group

Credit extension limits for mutual savings banks that are affiliates of a business group were instituted in September 2010. For such mutual savings banks, the aggregate of credit extended to a single counterparty may not exceed 20 percent of the mutual savings banks’ capital on a consolidated basis. Similarly, the aggregate of credit extended to a same counterpartyㅡa counterparty and any group of connected counterpartiesㅡmay not exceed 25 of the mutual savings banks’ capital on a consolidated basis. Thus, mutual savings banks affiliated with companies in a business group are subject to credit extension limits applicable to not only a single counterparty and a same counterparty as a stand-alone mutual savings bank, but also credit extension limits applicable as affiliates in a business group.

Other Limits on Credit Extensions

Mutual savings banks must also comply with certain credit extension requirements to individual borrowers and small businesses. For mutual savings banks operating in major metropolitan areas, at least 50 percent of the aggregate credit extensions must be made to individual borrowers. Additionally, credit extension for real estate project finances may not exceed 20 percent of the total credit.

Securities Investment

Some limits also apply to securities investments. The aggregate amount of securities investment may not exceed 100 percent of the mutual savings bank's capital. With respect to individual investment, stock investments may not exceed 50 percent of the capital, and the aggregate of stocks and bonds of a company (and others related to the company) may not exceed 20 percent of the capital.

Specialized Credit Finance Companies

Because specialized credit finance companies are not deposit-taking institutions and perform only limited credit intermediation functions, they are excluded from credit extension limits for a single counterparty, a same counterparty, and large credit extensions. In respect of credit extension to a major shareholder of a specialized credit finance company, however, credit extension limit is set at 50 percent of the company’s capital.

  • Restrictions on Real property Acquisition: Specialized credit finance companies are prohibited from acquiring ownership of real properties for purposes other than business operations. In addition, ownership of real properties for business operation purposes is limited to 100 percent of the capital.
  • Restrictions on Leverage Ratio: Specialized credit finance companies are subject to leverage restrictions. Leverage ratioㅡdefined as a ratio of aggregate assets to capitalㅡmay not exceed 6 (or 600 percent) for credit card companies; that is, aggregate assets may not exceed capital by a factor of 6. For other specialized credit finance companies, the leverage ratio must be less than 10.
  • Restrictions on Secondary Businesses of Credit Card Companies: Credit card companies may offer cash advance and loan services to their card members as secondary businesses in addition to their primary business of credit card services. As a safeguard to prevent credit card companies from concentrating in cash advance and loan services, rules on the secondary businesses of credit card companies provide that the aggregate amount of receivables from cash advance and loan services may not exceed the aggregate of credit card receivables and debit card purchases.

Credit Unions

Credit extension to a borrower (and connected borrowers) may not exceed the larger of either 20 percent of the capital or 1 percent of the assets from the previous year’s balance sheet. The maximum amount of credit extension permitted for credit unions whose capital was more than KRW50 billion won from the most recent accounting period is KRW10 billion. For credit unions with less than KRW50 billion in capital, the limit is KRW5 billion. In respect of asset-based credit extension limit, the maximum is KRW700 million. In addition, credit unions must hold at least 10 percent of the member deposits as redemption reserve, and at least 50 percent of the reserve must be deposited at the national federation and the rest held in the form of cash or deposits in a financial services company or in qualified investment.