BOK gov warns of financial stability risks amid failing real estate loans

Bank of Korea Governor
(Bank of Korea Governor Rhee Chang-yong)

The governor of South Korea’s central bank Rhee Chang-yong warned of increasing financial sector risks amid rising delinquency for real estate loans— even as there are signs of the property market slowly recovering.

“In the mid- to long-term, it is necessary to find a way to smoothly deleverage household debt in cooperation with relevant institutions so that financial imbalances don’t accumulate again,” Rhee said in remarks at the Bank of Korea’s (BOK) 73rd anniversary ceremony.

“As the importance of non-banking and the complexity of the system have increased, it is difficult to achieve the goal of financial stability for the entire national economy by targeting only banks,” Rhee elaborated. He also urged strengthened cooperation with supervisory authorities and “if necessary, measures to achieve financial stability goals should be devised.”

Rhee’s comments come before central banks meetings in Japan, the US and Europe this week.

“Going forward, we will have to carry out monetary policy in a more sophisticated manner, taking into account downside risks to growth, financial stability risks as well as changes in major countries’ monetary policies such as the United States,” Rhee said.

The Bank of Korea maintained its base rate at 3.5% during its May meeting, as widely expected, holding rates for the third straight time. South Korea is Asia’s fourth-largest economy.

With reporting by Bloomberg and Reuters