Chaebols’ financial units under watch to prevent them from offering unlawful financial support to conglomerate owners or other cash-strapped subsidiaries

2013-11-05 16:56

Chaebols’ financial units under watch

By Kim Rahn
Authorities will strengthen regulations on money-lending affiliates of conglomerates in an effort to prevent them from offering unlawful financial support to conglomerate owners or other cash-strapped subsidiaries. Officials at the Financial Services Commission (FSC) and the Financial Supervisory Service said Tuesday they plan to set a ceiling for loans which a large-sized conglomerate’s money-lending unit can offer to its largest shareholder.The measure, to be adopted next year, follows the recent allegation that Tongyang Financial Services, troubled Tongyang Group’s money-lending arm, had been used as the owner family’s “private bank” to provide illegal loans to other ailing affiliates.
“Problems involving conglomerates’ money-lending subsidiaries emerged along with the Tongyang Group case. Stricter regulations are inevitable,” an FSC official said.
“There are about 20,000 moneylenders here, but most of them are small ones. We think we’ll apply the loan cap for largest shareholders only to affiliates of the related conglomerates,” he said.
Currently, non-banking financial institutions, such as capital services companies or savings banks, are obliged to make public their loans to their largest shareholders or their owner-families when it is more than 1 billion won. Such firms are also banned from lending more than 25 percent of their equity capital to those people.
But moneylenders are not categorized as financial institutions and have avoided the regulation.
The financial authorities said only some will be subject to the new rule, including affiliates of Shinan Group, Hyundai Marine and Fire Insurance, Tongyang Group, Hyundai Heavy Industries and Booyoung Group.
“Tongyang Financial Services ducked the regulation by changing from a credit finance company to a moneylender in 2004. The group misused the company and finally caused a crisis with the court receivership of five affiliates,” the official said.
The authorities are also considering categorizing such affiliates as “financial institutions.”
According to the law, financial institutions need the authorities’ approval if they are to hold over a 20 percent stake in other firms. Companies not in the “financial institution” category have not been subject to the rule, so in Tongyang’s case, its money-lending unit and other non-financial units held each other’s shares and the former offered loans to the latter despite its poor financial status.
FSC Chairman Shin Je-yoon said recently, “Considering the Tongyang case, there need to be more regulations on such cross-ownership. We are considering designating such moneylenders as financial institutions.”
Tongyang Financial Services, wholly-owned by Tongyang Securities, offered 1.5 trillion won in loans to the group’s affiliates from 2012 to the first half of this year, including 777 billion won to Tongyang Leisure and 580 billion won to Tongyang International while their capital was impaired.
The company borrowed money from relatively strong affiliates, such as Tongyang Holdings and Tongyang Cement & Energy, and lent it to the cash-strapped affiliates.