Information about bank's loan programs is shown in front of the bank in Seoul, June 12. Yonhap

A senior official of the Financial Supervisory Service (FSS) on Friday called for banks to preemptively curb household debts.

Lee Joon-soo, FSS senior deputy governor for banks and nonbanks, made the call in a luncheon with the chairs of the boards of directors at 18 banks in the country.

"Local banks are showing strong performances in terms of the capital adequacy ratio and profitability, but their fiscal soundness is deteriorating amid a rise in the delinquency rate of small and medium-sized businesses due to slowing domestic demand," he told the meeting.

"(We) ask the boards to strengthen their oversight so the banks' risk management systems will work effectively against the deteriorating fiscal soundness and to do their utmost to manage their capital so it will maintain its resilience even when an unexpected shock occurs in the financial market," he added, according to the FSS.

Earlier reports said household loans extended by banks rose for the third consecutive month in June, with outstanding household loans from banks standing at 1,115.5 trillion won ($809 billion) as of end-June.

"(We) also ask for active cooperation from each bank to maintain household debts, which is one of the potential risks facing the domestic financial market, so they may increase stably within the rate of growth in the country's nominal gross domestic product," Lee was quoted as saying.

The FSS official also urged the boards to strengthen their internal monitoring and control systems, citing recent incidents of theft and embezzlement by bank officials.

"Improving the system or taking punitive measures has limits in preventing illegal, unfair practices beforehand, and must be accompanied by the establishment of a clear and consistent risk management culture and incentives for fair business practices," Lee said.

"The process of establishing a healthy risk culture cannot but take a long time, so there is a need for the financial regulator and the boards to work together continuously and consistently." (Yonhap)