The Bank of Korea’s headquarters in central Seoul (Image courtesy of Yonhap)
SEOUL, Mar. 28 (Korea Bizwire) — South Korea’s financial system remains relatively stable, but debt payment burden and asset deterioration may increase amid extended monetary tightening, a central bank report showed Thursday.
In its report on financial stability, the Bank of Korea (BOK) said despite woes over a possible rise in soured property development-related loans and rising debt payments, the country’s financial system remains good on the back of a recovery in the financial market and a slowdown in household debt.
But the central bank warned that the possibility of more property development-related loans turning sour, a rebound in debt payment burdens and increased debt leverage could inflate risks and deteriorate asset quality of financial institutions.
Against these backdrops, the central bank said the authorities need to tighten the management of risks against a potential resurgence of property-related loan deterioration, and increased debt payment burden by households and companies.
More specifically, authorities are urged to take measures for the soft landing of the property development market.
The BOK also said financial institutions need to strengthen their asset soundness by sorting out more bad loans and putting aside more loan-loss reserves.
Real estate project financing loans have become a major risk factor of the financial sector amid a prolonged slump in the property market due to price hikes.
According to data from the Financial Supervisory Service, the delinquency ratio on real estate project financing loans had come to 2.70 percent as of end-December, up 0.28 percentage point from 2.42 percent three months earlier.
The total value of outstanding loans climbed to 135.6 trillion won (US$102 billion) from 134.3 trillion won over the cited period, the data showed.
Household loans continued to grow despite high borrowing costs but showed signs of a slowdown, according to the central bank.
Banks’ outstanding household loans had come to 1,100.3 trillion won as of end-February, up 2 trillion won from a month earlier, marking a fall from a 3.3 trillion-won rise the previous month.
But February tally marks an on-month increase for 11 months in a row, the data showed.
Last month, the bank held its key interest rate steady at 3.5 percent for the ninth straight time amid still high inflation and household debts, and some expect the BOK may start cutting the rate after June.
The rate freeze comes after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.
(Yonhap)
