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Financial stability top priority for 4 financial heads
Deputy Prime Minister and Finance Minister Hong Nam-ki / Korea Times file
By Lee Kyung-min
By Lee Kyung-min
The government will closely monitor credit risks amplified by the COVID-19 pandemic-induced heavy borrowing this year, in a preemptive move to strengthen financial stability, certain to deteriorate amid the growing insolvency threat facing vulnerable income groups and industries, the four heads of the financial and monetary authorities said Tuesday in their respective New Year addresses.
The collective resolve seeks to place greater emphasis on the need in recent years to bring excessive borrowing under control, as illustrated by the recent tightening of monetary easing and lending rules in an inevitable step for an economy showing slow yet clear signs of recovery.
Most borrowers will be able to repay their debts, but the country's recovery will be only as strong as low-income earners and small businesses, whose livelihoods have been in tatters since the beginning of the pandemic, they said.
The need to bolster financial stability will be stressed throughout the year, a critical step to navigating the continued slew of challenges, notably concerns of rising inflation, monetary normalization in key advanced countries and a slowdown in the Chinese economy.
New Year addresses
Deputy Prime Minister and Finance Minister Hong Nam-ki said that household debt and cheap liquidity should be managed thoroughly.
“The government will limit the year-on-year growth of household debt to between 4 percent and 5 percent for fiscal soundness,” Hong said in his New Year address on Tuesday. “We ask that financial services firms extend their installment periods to meet this goal.”
The ministry will, however, ensure that low-income earners and small businesses are able to borrow funds for emergency needs.
“The steep rise in household debt will be curbed in stages, with the impact of government measures on the economy and the financial market monitored closely.”
Bank of Korea Governor Lee Ju-yeol said that the country is expected to see a heightened threat of credit risks, mostly in the form of insolvencies of the self-employed and providers of in-person services, including owners of eateries and small bars.
“Some households and self-employed people who had to rely on loan extensions to survive sluggish business conditions will face an increased burden of debt repayment and interest payment in the process of monetary normalization,” Lee said in his New Year address.
“These vulnerabilities, in addition to a series of external uncertainties, can pose a weak link in the entire financial system, a reason why risk management should be strengthened.”
Further COVID-19 spread and the emergence of the Omicron variant remain the biggest threats to economic recovery, Lee added, as a major downside risk, alongside inequality issues.
“The income and asset divide, deepened by the pandemic, is feared to stymie the smooth transition to a green and digital economy with the focus of direction and speed being distracted,” he said. “The health crisis has led us to seek a new balance for the post-pandemic era, instead of returning to pre-pandemic times. This year will prove an important milestone in that sense.”
Financial Services Commission Chairman Koh Seung-beom said that the financial stability system will be thoroughly managed without any room for failure.
“We will continue to strengthen household debt management and measures to protect the country's workers and the vulnerable,” Koh said in his New Year address.
Financial Supervisory Service Governor Jeong Eun-bo said that the most important goal of this year is the “preemptive supervision” of potential risks.
“Financial supervisory systems for financial companies will become more stringent, thereby increasing the soundness of overall supervision and oversight. The stable management of household debt and financial services firms will be advanced,” Jeong said in his New Year address.
The four heads had been attending an annual meeting at the Korea Federation of Banks in Seoul every first week of January, but they each issued their own New Year addresses after this year's meeting was canceled, due to the pandemic.