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June 08, 2011

  • News:  Bond Restrictions For SK Lenders 

    As part of the recent steps to prevent South Koreans from going deeper in credit card debt, the Financial Services Commission (FSC) along with the Financial Supervisory Service (FSS) announced that it will be implementing new rules that limit how lenders issue corporate bonds. This is the third time this year that new rules have been created in attempt to curb activities by credit card companies that a potentially damaging to the country's economy. Fierce competition pushed lenders into issuing corporate bonds that greatly surpass safe limits. Going forward, credit card companies will be monitored on a weekly basis to ensure that they have not exceeded their goals.

    South Korean officials are taking the action to secure the country's future and preventing a repeat of the credit card crisis. Jointly, the FSC and the FSS are the nation's top financial regulatory agencies and have created these new rules to prevent a negative impact on the nation's economy resulting from excessive competition. Included in the new rules is the abolishment of a clause in the Specialized Credit Financial Business Act that exempts credit card companies which prevents financial institutions from issuing bonds greater than 10 times the company's assets. Because card companies do not take deposits, they have been excluded from the clause.

    There is an out, however, for credit card companies to be exempt. If the card company's capital has increased by at least 18.3 times over the past 12 year period, it would be not be restricted from issuing additional corporate bonds. Included in the rules is the "leverage limit" whereby the company's total assets will be limited. If the company should exceed its limit, they will be required to increase equity or reduce assets. The agencies have not yet determined what that "leverage limit" will be, however, they expect to release those numbers after hearing input from the public and other interested parties. Any company who exceeds the limit/goal will be subject to severe consequences.

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