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Bank of Korea Governor Rhee Chang-Yong has expressed concerns about increasing risks in the financial sector, particularly due to a rise in overdue real estate loans. While the housing market is slowly recovering, Rhee emphasized the need to find ways to gradually reduce household debt in collaboration with relevant institutions. Rhee called for enhanced collaboration with regulatory authorities and the development of necessary measures to ensure financial stability. Additionally, Rhee cautioned against premature confidence in inflation easing and stressed the importance of a well-thought-out policy response to address economic growth and price pressures.
Bank of Korea Governor Rhee Chang-Yong expressed concerns about the increasing risks in the financial sector due to a rise in overdue real estate loans, even though the housing market is slowly recovering.
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To prevent the accumulation of financial imbalances, Rhee emphasized the importance of finding a way to gradually reduce household debt in collaboration with relevant institutions in the medium to long term.
However, the BOK’s ability to address this risk may be more limited now because a significant portion of loans and assets has been transferred to non-bank financial firms, which are not under the oversight of the BOK. Rhee noted that the deposits in these alternative institutions have already surpassed those in traditional banks, and their interconnections pose a high level of interconnectedness.
“Increasing the importance of non-banking institutions and the growing complexity of the system make it challenging to ensure financial stability for the entire national economy solely by focusing on banks,” Rhee stated. He emphasized the need for enhanced collaboration with regulatory authorities and the development of necessary measures to achieve financial stability objectives.
Rhee also discussed the overall economic situation, expressing caution about premature confidence in inflation easing, as core inflation is taking a longer time to decrease. He highlighted the necessity for a well-thought-out policy response to address the evolving dynamics of economic growth and price pressures. Furthermore, Rhee mentioned that the Bank of Korea should be prepared for potential changes in the current account balance and ensure appropriate levels of liquidity.
During its May meeting, the central bank decided to maintain its policy rates for the third consecutive meeting, while reiterating the possibility of a future increase in response to persistent inflation. Although consumer prices showed a slight decrease in May, core inflation continues to remain high.
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