Policy Pivot, Weak Demand, Property Market Uncertainty Pose Risks to Financial Stability: BOK | Be Korea-savvy

Policy Pivot, Weak Demand, Property Market Uncertainty Pose Risks to Financial Stability: BOK

The Bank of Korea's headquarters in central Seoul (Image courtesy of Yonhap)

The Bank of Korea’s headquarters in central Seoul (Image courtesy of Yonhap)

SEOUL, Dec. 28 (Korea Bizwire)A pivot in monetary tightening modes, weak domestic demand and uncertainties over the property market may pose risks to financial stability, although the country’s financial system remains relatively stable, a central bank report showed Thursday.

In its report on financial stability, the Bank of Korea (BOK) said market expectations about a change in monetary policies may increase the volatility of the financial market, and hopes for rate cuts may spur an increase in household debts.

Also, a weaker-than-expected recovery in private spending will increase debt payment burdens amid high rates and subsequently negatively affect the property and construction sectors, which in turn will hurt asset quality by financial institutions and jack up market rates, the central bank said.

Against these backdrops, the central bank said the authorities need to tighten the management of credit risks in the private sector and prod financial institutions to heighten their capability to absorb losses.

More specifically, authorities are urged to redouble efforts to strictly implement household debt management measures and take speedy actions against risky property development projects as well.

Financial institutions also need to strengthen their asset soundness by selling or writing off bad loans, in addition to putting aside more loan-loss reserves, the central bank said.

Household loans continued to grow despite high borrowing costs amid an uptick in home prices.

Household loans extended by banks rose for the eighth straight month in November, led by rising home-backed loans amid worries that highly indebted households could pose a risk to Asia’s fourth-largest economy amid high borrowing costs.

Last month, the bank held its key interest rate steady at 3.5 percent for the seventh straight time amid a slowdown in growth and moderating inflation, and some expect that the BOK may start cutting the rate in the third quarter of next year.

The rate freeze comes after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.


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