Market stabilization programs to be actively deployed; support scale to expand if needed

Q4 bank bond, credit card company bond issuance and maturity structures to be reviewed in advance

Repayment burden on vulnerable borrowers from rising rates also under scrutiny

FSC Chairman Lee Eok-won. [Photo by Lim Se-jun]
FSC Chairman Lee Eok-won. [Photo by Lim Se-jun]

Financial Services Commission Chairman Lee Eok-won on Thursday called for preemptive measures against growing market volatility, citing rising domestic and overseas interest rates, shifts in the semiconductor industry and geopolitical risks as key sources of financial market instability.

The FSC held a financial market situation review meeting at Government Complex Seoul, chaired by Lee and attended by officials from the Ministry of Economy and Finance and the Financial Supervisory Service, as well as experts from the Korea Institute of Finance, credit rating agencies and securities firms. The meeting focused on the impact of benchmark interest rate hikes by major economies on South Korea's financial markets and financial industry, and on potential risk factors.

Lee described the current situation as "a turning point where the direction of the financial environment is changing," saying that monetary policy stances are shifting toward tightening amid global inflation concerns, while uncertainties from changes in the semiconductor industry and Middle East tensions are compounding. "Risks can emerge from unexpected places, so relevant agencies must examine potential risks from multiple angles and prepare response measures in advance," he said.

Lee particularly directed that market stabilization programs for bond and funding markets maintain an active deployment posture as market interest rates continue to rise, and that preparations be made in advance to swiftly expand the scale of support should bond market volatility increase excessively.

He also asked that the issuance volume and maturity structures of bank bonds and credit card company bonds in the fourth quarter be reviewed ahead of time to prepare for supply-demand pressures in the market. Lee further instructed officials to assess the asset quality, liquidity buffers and funding structures of financial institutions during the period of rising rates, and to develop contingency measures should the repayment burden on vulnerable borrowers worsen.

The yield on three-year South Korean government bonds has risen 105.8 basis points since the start of the year, climbing from 2.953 percent at the end of last year to 4.011 percent on Wednesday. Meeting participants noted that rising market rates are accumulating funding costs, and that if an unexpected credit event occurs, refinancing risks in vulnerable sectors could spread to the broader financial system.

The FSC plans to strengthen market monitoring with relevant agencies and hold financial market situation review meetings on a regular basis to track risk factors going forward.

Meanwhile, the FSC reactivated its working-level household debt review meetings for the banking sector on Sept. 8, conducting weekly checks on how rising interest rates are affecting lending rates and borrower burdens. Key items under review include each bank's household loan progress rate, demand concentration in fixed- versus variable-rate mortgage products, and branch-level trends.


rim@heraldcorp.com