By Kim Jae-kyoung
Staff Reporter
A noted global financial expert said that Korea is not exposed to risks associated with asset deflation and property bubbles, but mortgages are posing a big threat for the Korean economy and financial markets.
The expert pointed out that Korean mortgages have become vulnerable to default risks as most of them are short-term loans sensitive to interest rate hikes.
``Korean mortgages remain dangerous financing instruments because they are short-term loans ― five years and less ― without amortizing payments to pay down the principal amount on a gradual basis,'' Market Force Company CEO James Rooney told The Korea Times.
``So I call them `time bombs' that can explode if credit market conditions become tighter when borrowers need to refinance,'' he added. ``That creates unnecessary financial and economic risk to Korean borrowers and the economy.''
However, Rooney, who is vice chairman of Seoul Financial Forum, discounted concerns over risks associated with asset deflation and subprime lending.
``I believe the fundamentals behind the Korean stock market remain sound in terms of corporate performance and profits, so recent falls in market prices represent a bargain buying opportunity and not a reason to become scared,'' he said.
``Besides, true homeowners should not have anything to fear from corrections or temporary adjustments in the housing market,'' he added. ``Unlike the U.S. and a few other places around the world, we do not have a significant risk in Korea from real estate asset bubbles or subprime lending.''
He forecast that oil price hikes are creating a serious short-term inflationary environment, dampening domestic demand, particularly private spending.
``Korea's poor domestic economic growth, relative to its growth potential, contributes to a difficult environment that makes people reluctant to go out and spend, and can lead to a downward spiral as domestic consumption contracts,'' he said.
Rooney stressed that Korea should be more open to the outside to get the economy back on track and create a bright future.
``Korea should be brave to face the future as a true global participant, attracting more businesses and visitors from overseas, importing more goods from other countries and reaching out to invest more successfully in other countries,'' he said.
``In addition, Korea needs to be creating new employment opportunities for everybody in Korea, and especially our young people, so it is time for bold initiatives to create new dimensions of economic growth,'' he added.