Bank of Korea chief voices concerns over growing credit risks among households, self-employed
Banking staff handle customers at a bank in Seoul, Dec. 31. Yonhap
South Korea's central bank chief urged local financial institutions Tuesday to brace for the possibility of growing credit risks from heavily indebted households and the self-employed as the country will continue to tighten loose financial and monetary policy put in place to prop up the COVID-19 pandemic-hit economy.
Bank of Korea (BOK) Governor Lee Ju-yeol made the remarks in his written New Year greetings to the financial community, adding that such credit risks could get worse amid rising external uncertainties.
"First and foremost, efforts should be made for thorough risk management," Lee said. "There is the possibility of growing credit risks mainly among some households and the self-employed with excessive leverage and facing a slowdown in business in the process of normalizing loosened financial measures."
"With external uncertainties very high, in particular, internal vulnerable factors could develop into a weak ring in the financial system, which warrants heightened monitoring to brace for potential danger," he added.
However, Lee continued to emphasize the importance of finance's role as a "catalyst" by providing funds to sectors that will spearhead innovation and accelerate the move toward a "digital economy" in the post-pandemic period.
Households and the self-employed have piled up more debt as they have been grappling with the fallout from the coronavirus pandemic since early 2020 as borrowing costs were kept at record lows to bolster the slumping economy.
The BOK and financial regulators are now beginning to roll back such measures as the economy is showing signs of rebounding, worrying that the debt issue could derail the recovery.
In November, the central bank raised its key interest rate to 1 percent with a second hike in borrowing costs after a 0.25 percentage point increase in August. Lee earlier hinted at the possibility of further rate hikes early this year. (Yonhap)