Financial watchdog urges careful monitoring of banks' financial health

South Korea's financial watchdog said Thursday it will step up efforts to early detect possible risks in the local banking sector amid a full-fledged corporate restructuring drive at home and unrelenting uncertainties abroad.

Speaking to lawmakers, Zhin Woong-seob, governor of the Financial Supervisory Service, reminded domestic banks of the need for stricter credit risk assessment of firms that may go insolvent anytime soon.

The FSC is at work with a "higher sense of tension and alertness than any other time to secure the soundness of South Korea's financial firms and the stability of the financial market at a time when uncertainties are growing internally and externally due to the US move to raise interest rates among others," he said during a regular parliamentary audit of his agency's affairs.

He predicted there will be positive effects from the introduction next year of regulations on the liquidity coverage ratio for foreign exchange reserves held by banks.

The LCR is meant to ensure financial institutions have necessary assets on hand to ride out short-term liquidity disruptions.

On the household debt problem, Zhin confirmed the authorities' plan to turn the screw on lenders with excessive growth in mortgage loans.

He was cautious about new reports that global consulting firm McKinsey & Company has concluded that Daewoo Shipbuilding & Marine Engineering, South Korea's biggest shipbuilder, is unlikely to survive the current financial crisis.

"We have not formally received a (related) report yet," he said. "It's hard to talk (here) about the trustworthiness of the McKinsey report, but the Korea Development Bank is leading a constant review of Daewoo's liquidity and risk factors." The state-funded bank is a main creditor of the troubled shipyard. (Yonhap)