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S. Korea's financial market stable but imbalance worsens: BOK

All News 11:00 March 25, 2021

SEOUL, March 25 (Yonhap) -- South Korea's financial market continues to be stable, but the risk of financial imbalance worsened because of a jump in asset prices, the Bank of Korea (BOK) said Thursday.

In a regular report on financial stability, the BOK also called for vigilance against a rise in debt at households and companies amid the COVID-19 pandemic.

The nation's financial stability index shot up to 22.3 in April last year, breaching the lower boundary for a crisis warning, but it has since come down to 8.

At the end of last year, outstanding debt of South Korean households reached 1,726.1 trillion won (US$1.52 trillion), up 7.9 percent from a year ago.

The growth pace of household debts accelerated last year. It grew 4.6 percent in the first quarter of last year, 5.2 percent in the second quarter, 7 percent in the third quarter and 7.9 percent in the fourth quarter, according to the report.

Local households' ability to pay back their debts worsened due to reductions in income, apparently caused by the coronavirus pandemic.

S. Korea's financial market stable but imbalance worsens: BOK - 1

As of the end of last year, households' debt to disposable income ratio came to 175.5 percent, up 13.2 percent from a year ago, the report said.

The BOK warned that vulnerable households may fail to repay their debts if an economic recovery is delayed.

Outstanding debt of South Korean firms stood at 1,359 trillion won at the end of last year, up 15.3 percent from a year ago, the BOK said.

The BOK noted the need to cope with a potential credit crisis if the economic recovery falters.

Earlier this week, BOK Gov. Lee Ju-yeol said South Korea's economy is expected to recover from the COVID-19 pandemic at a faster pace than expected this year as the U.S. economic recovery gathers steam.

However, Lee said the BOK has no plans to normalize its monetary policy earlier than anticipated.

The BOK kept the nation's 2021 growth outlook at 3 percent in its latest update.

Last month, the BOK froze the key interest rate at a record low of 0.5 percent after cutting a total of 75 basis points last year amid the virus outbreak.


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