Credit risk

BOK chief concerned about rising credit risk for households and self-employed

BOK chief concerned about rising credit risk for households and self-employed

BOK Governor Lee Ju-yeol speaks during a press briefing held at the central bank’s headquarters in Seoul on December 16, 2021. (Bank of Korea)

South Korea’s central bank chief on Tuesday urged local financial institutions to prepare for the possibility of growing credit risk from highly indebted households and the self-employed as the country continues to tighten financial policy and loose monetary policy put in place to support the economy affected by the pandemic. .

Lee Ju-yeol, Governor of the Bank of Korea (BOK), made the remarks in his written New Year’s greetings to the financial community, adding that this credit risk could worsen amid growing external uncertainty.

“First and foremost, efforts should be made for thorough risk management,” Lee said. “There is the possibility of increasing credit risk primarily among some households and self-employed with excessive debt and facing a slowdown in activity in the process of normalizing soft financial measures.”

“With very high external uncertainty, in particular, these vulnerable internal factors could turn into a weak ring in the financial system, warranting heightened surveillance to prepare for potential danger,” he added.

Still, Lee underscored the importance of finance’s role as a “catalyst” by providing funds to sectors that will spearhead innovation and accelerate the transition to the “digital economy” in Europe. post-pandemic era.

Households and the self-employed have racked up more debt as they grapple with the fallout from the coronavirus pandemic since the start of 2020, with borrowing costs kept at record highs to support the collapse of the economy. ‘economy.

The central bank and financial regulators are now pushing to roll back those measures as the economy shows signs of rebounding on fears the debt problem could derail the recovery.

In November, the BOK raised its key rate by one percentage point to 1%, which was the second increase 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)