The Bank of Korea’s (BOK) report on financial stability revealed that while household and corporate debts are continuing to increase and the delinquency rate is climbing, there is a low chance of any financial imbalance and deteriorating asset quality causing a systemic risk.
The report highlighted that the local financial system is stable, although there is the possibility of financial imbalance rising amid worsening risks at home and abroad. Household loans extended by banks in South Korea rose by the sharpest in over two years in August due to increased demand for home-backed loans amid high borrowing costs.
Borrowing costs in South Korea remain elevated following the BOK’s aggressive monetary tightening aimed at bringing surging inflation under control. The BOK has kept its benchmark rate unchanged at 3.5 percent for the fifth straight month in the face of a murky growth outlook and moderating inflation.
The BOK report noted that the local stock and bond markets are facing increased volatility amid an extended tightening mode by the Federal Reserve and rising risks related to China’s property market. The central bank said that although financial institutions’ soundness has slightly worsened, their resilience is still being maintained. However, it cannot be ruled out that a drop in asset prices contracts the financial system and the real economy.
But the central bank said there is a low possibility of systemic risk arising even in case of widened financial imbalance and a deterioration in asset prices.
This undated file photo shows the Bank of Korea’s headquarters in central Seoul. (Yonhap)
sam@yna.co.kr
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