Financial stress index stays in 'danger' stage amid global tightening, credit crunch woes

SEOUL, Dec. 22 (Yonhap) -- The financial stress index (FSI) for South Korea has risen to the "danger" stage, affected by global monetary tightening and increased volatility in the corporate debt market, a central bank report said Thursday.

According to the report from the Bank of Korea (BOK), the FSI stood at 23.6 and 23.0 in October and November, respectively, both of which surpassed the 22 mark over which financial stress is categorized as danger.

The FSI, an indicator of financial market volatility, is calculated based on analysis of economic conditions and their impact on the financial market.

The index had stayed in the "caution" stage for the previous seven straight months since March as it remained below 22. But it rose from 8.6 in March to 19.7 in September.

"With monetary tightening in major countries, global geopolitical risk and other factors expanding financial market volatility and credit worries also on the rise, such unexpected credit incidents as the Legoland case have combined to restrict some of the intermediating function of the bond and short-term money market," the BOK said in the report.

"Thanks to market stabilization measures by the government and the BOK, the FSI inched down in November," it added.

The corporate bond market was roiled by a series of unexpected events in the money market, including a rare default on a municipal government-guaranteed debt and a local insurer's decision not to exercise a call option for hybrid bonds.

Though those market-hurting decisions were taken back later, anxiety spiked, sending borrowing costs soaring and making it harder for businesses to secure funds for operations amid already high interest rates in place to fight inflation.

The market has been showing signs of regaining stability recently after the government unveiled a series of measures to inject liquidity and urged banks and state-run enterprises to reduce or evenly distribute bond selling.

kokobj@yna.co.kr
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