Increasing household debt risk, rising financial commission warning sound

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As real estate prices and stock markets rise, concerns over an increase in household debt are also rising.

The Bank of Korea, which maintains a modest monetary policy to overcome the Corona 19 crisis, has clarified its position that it is necessary to pay attention to financial imbalances while continuing its efforts to stabilize the financial market. The policy is to prepare for possible situations.

At the 27th Financial Monetary Committee held on December 24 last year, members of the Financial Services Commission issued an early warning message about this as concerns about deepening financial imbalances increased, such as a sharp increase in household credit and corporate credit and increased pressure on asset prices in the process of responding to Corona 19. He pointed out that there is a need to communicate clearly.

The bank members said that it is necessary to preemptively consider how to differentiate between self-employed households with insufficient liquidity and self-employed households in a state of non-repayment. Revealed.

A member of the Finance Commission said, “In evaluating the credit risk of domestic banks, it is necessary to pay attention to the possibility that the credit risk of SMEs will be under-reflected,” he said.

According to the preliminary estimate of the’financial circulation in the third quarter of 2020′ recently announced by the Bank of Korea, net fund management (30.7 trillion won) in households and non-profit organizations nearly doubled compared to the same period last year (16.6 trillion won), and the scale of equity securities and investment fund management (22.5 trillion won) also increased significantly compared to the same period last year (-0.8 trillion won).

An official from the Bank of Korea said, “As the stock market is on the rise, the share management sector seems to have increased a lot. Both residents as well as non-residents have all the largest investments in issued stocks.” It was also the highest ever recorded.

Regarding the direction of the monetary credit policy operation, there were mixed reactions among the members of the Financial Services Commission over the inclusion of the expression’more attention to the risk of financial imbalances’.

Several committee members expressed the opinion that it is appropriate to include this phrase in the operation of monetary policy in consideration of recent changes in financial stability while maintaining the easing trend of monetary policy. He was cautious as he heard that it could lead to an unintended market ban.

Regarding the’General Principles of Monetary Credit Policy Operation’, the KFTC members gathered opinions on revising the expression in a direction that states the need to maintain financial imbalances and efforts to stabilize financial markets.

It is true that the Corona 19 situation is still not good, but an opinion was suggested that more attention should be paid to financial stability in the future.

The Bank of Korea has been easing its monetary policy in response to the Corona 19 crisis. Recently, financial stability issues are emerging, centering on household debt and real estate prices.

Accordingly, it is pointed out that the policy should be carried out by paying attention to situations that may arise if the policies or measures taken inevitably in the course of responding to Corona 19 become normal in the future.

A bank member said, “For the past year, the main focus of monetary credit policy was to prevent the economic downturn and stabilize employment. We must make sure that our efforts and efforts are well known to the outside.”

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