The chief of South Korea’s financial watchdog urged financial circles to be wary of business expansion and to secure capital reserves, assuming that the COVID-19 pandemic will drag on.

“The financial circles should maximize their total loss absorbency capacity, bracing for a prolonged fallout of COVID-19,” Yoon Suk-heun, governor of the Financial Supervisory Service, said in a financial supervision advisory committee meeting held Friday at the Korea Federation of Banks headquarters.

In line with such policy direction, Yoon recommended that financial companies adopt a conservative business stance, focusing on boosting internal reserves while refraining from business expansion for a while.

But he also added concerns that an excessive risk management-driven strategy may aggravate the economy that is already struggling under the epidemic fallout.

“If financial companies get carried away with risk management and contract their bankrolling function, this may lead to side effects such as economic downturn and credit crunch,” he said, apparently warning financial players against withdrawing liquidity from firms.

The FSS chief also urged financial companies as well as consumers to take precautions against high-risk, high-return products amid the current low-growth, low-interest financial surroundings, alluding to the massive losses caused by the derivative-linked funds last year.

By Bae Hyun-jung (tellme@heraldcorp.com)