Experts say “Drastic reduction in likelihood of financial crisis within one year”
“Drastic reduction in likelihood of financial crisis
within one year”
that possibility of short term shocks is “(very) high”
dropped 21.5bp within 6 months
Domestic and foreign finance
and economy experts judge the possibility of the occurrence of a shock in the
domestic financial system within one year to have diminished greatly compared
to the second half of last year.
to the results of the survey on system risk for the first half of 2023, which
the Bank of Korea revealed on May 3, in regard to the question of the
likelihood of the occurrence of a short term shock within one year which could
result in a crisis in the financial system, the share that responded “very high”
was 36.8%, which was 21.5bp lower
than that of November of last year (58.3%).
response to the possibility of a mid-term (1 to 3 years) shock was also lower
than that of November of last year. The share that responded “very high”
dropped 6.1bp from 40.3%
to 34.2%. In contrast, the share of respondents that responded “very high” or “high”
about the reliability (for the next three years) of the stability of Korea’s
financial system grew 5.9bp from 36.1% to 42.0%.
addition, domestic and foreign finance and economy experts chose “a high level of household debt and increase in
(53.9%) as the greatest risk (based on frequency measured by number of responses)
in the current Korean financial system. This was followed by “stagnation of the real estate market”
(48.7%), “increase in
financial institutions’ Non-Performing Loans and contingent loans; possibility
of large-scale deposit withdrawals” (43.4%), etc. Overseas risk factors took up
the lowest share (frequency of responses), such as “lengthening of period of
U.S. monetary policy tightening” (28.9%).
Notably, the response rate to “stagnation
of the real estate market” rose 12.6bp from November of last year (36.1%), and
stood out as a major risk factor. However, the “increase in risk of
non-performance due to corporate industrial situations and deterioration in
financing conditions” dropped from 62.5% to 42.1%, while “inflation pursuant to
rise in price of raw materials and difficulties in global supply” dropped from 34.7%
to 22.4%. “Ongoing current account deficit” (31.6%) was added as a new risk
factor for this recent survey.
For the financial industry,
where future vulnerability is judged to surface most conspicuously going
forward, experts focused on the non-banking sector, such as savings banks,
mutual finance, small and medium securities firms, capital firms, etc. Notably,
non-performance of real estate Project Financing is predicted to be the major
factor for weakness in that sector in the future.
In response, experts called
for 1) strengthening of management and supervision regarding liquidity response
ability of financial institutions, and provision of appropriate liquidity upon
occurrence of financial market instability; 2) encouragement of expansion of
loss absorption ability of financial institutions and stress tests for
preemptive management of potential risks within the financial system; and 3)
maintaining financial stability by managing real estate and interest rate
policies from a long term perspective.
This survey was conducted by
the Bank of Korea from April 5-17, targeting 76 domestic/foreign finance and
economy experts in financial institutions, research centers, universities and
foreign investment banks.
(Provided by Newsys)