The Banking Regulation and Supervision Agency (the “BRSA“) made amendments to the Regulation on Credit Transactions of Banks (the “Credit Transactions Regulation“) on July 8, 2021 with a view to, among others, regulating the troubled assets (the “Amendment“).
Resolution of Troubled Assets
The fundamental aim of the Amendment is to introduce concept of the “resolution of troubled assets” mechanism within the scope of the Credit Transactions Regulation.
With a view to resolving troubled assets, banks will conduct management and mitigation activities for loans qualified as restructured and non-performing in accordance with the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions to be Set Aside for These Loans.
The boards of directors of banks will form and implement policies in relation to the resolution of troubled assets, to monitor such policies and to take necessary measures for this purpose.
Establishment of Strategy and Resolution Units for Resolution of Troubled Assets
Banks whose non-performing loan ratios are equivalent to or higher ratio than five thousandths (5‰) of the banking sector’s gross non-performing loans (the “Threshold“) have to form a strategy for troubled assets and establish resolution units in order to manage troubled assets and minimize them in a reasonable period of time. For the calculation of this ratio, the previous year-end data will be used.
The BRSA may request a bank to form a strategy for troubled assets loans and to establish resolution units if the bank’s non-performing loans substantially consist of loans extended to a specific geographic region, a specific industry or related customers even though such bank’s ratio is lower ratio than the Threshold.
If the BRSA detects situations indicating an increase in the credit risk during its inspections, it may also request the relevant bank to form a strategy for troubled assets and establish resolution units.
Resolution units will conduct activities for the resolution of troubled assets in accordance with the strategy for the resolution of troubled assets.
In order to avoid any potential conflict, resolution units to be established will be independent from credit allocation units.
Banks will need to establish their resolution units by 31 December 2021. The BRSA is authorized to extend this period for up to six months.
Strategy for Troubled Assets and Operational Plan
The strategy for troubled assets to be prepared will be made for a three-year period and include at least (i) scheduled and quantitative objectives for the resolution of troubled assets and management of assets acquired in return for these troubled assets and (ii) an operational plan for achieving these objectives.
Each bank will make a self-evaluation in relation to the objectives in its strategy for troubled assets and send its results to its board of directors.
Each bank is required to have its strategies and operational plans for troubled assets approved by its board of directors and to send them to the BRSA by the end of September of each year.
Banks that will prepare their strategies and operational plans for the first time are obliged to send them to the BRSA by 31 December 2021. The BRSA is authorized to extend this period for up to six months.
The BRSA encourages banks to take concrete steps to resolve their troubled assets within a reasonable timeline.