BOK stresses vigilance over financial imbalances, rising debts tied to higher interest rates

The Bank of Korea (BOK) said Tuesday it needs to raise its guard against accumulated financial imbalances, the rising debt burden in tandem with higher interest rates and potential volatility in the financial and currency markets.

In a financial stability report, the BOK said the country's financial system remains relatively stable on the back of the resilience of financial institutions and its capability to respond to external shocks.

"But amid the accumulated financial imbalance, the possibility of vulnerable sectors further becoming feeble and the risks of volatility in the financial and currency markets becoming greater still remain," it said.

Financial imbalances have been building up as home prices have been showing no let-up and expectations for a further rise in housing prices still run high, according to the BOK.

The BOK said the percentage of household debt against the country's GDP stood at 85.3 percent at the end of March, still higher than the long-term average of 84 percent.

The country is continuing to rack up strong economic growth on the back of a strong cycle in the semiconductor sector, but the income disparity is deepening, which calls for more attention to the worsening capability of the vulnerable sectors for debt payments, it added.

"We need to remain vigilant against the potential liquidity risks of financial institutions in case of increased financial market volatility stemming from the U.S. Federal Reserve's policy changes and the geopolitical risks in the Middle East," the central bank stressed.

Yonhap