"Increase in Secondary Financial Loans... Encouraging Crisis Response"
[Asia Economy Reporter Kim Hyo-jin] Financial authorities have expressed their intention to be cautious about the relatively high Debt Service Ratio (DSR) of non-residential mortgage loans and the increasing vacancy rates in commercial properties.
On the 28th, the Financial Services Commission held a Financial Risk Response Team meeting chaired by Secretary-General Kim Tae-hyun to discuss these issues.
The financial authorities noted that due to the balloon effect from strengthened household loan management, there was a possibility of an increase in non-residential mortgage loans. After a primary inspection of the banking sector, it was confirmed that the growth rate of non-residential mortgage loans in banks is slowing, and the borrower composition shows a high proportion of high-income and high-credit borrowers, with no unusual trends observed so far.
However, since the average DSR is higher compared to mortgage loans for residential properties and commercial vacancies have increased over the past three years, the authorities stated that they will consult with relevant agencies to take necessary measures if any signs of instability are detected in the future.
The financial authorities also plan to closely monitor the loan growth trends in the secondary financial sector, such as savings banks and mutual finance institutions. As of the end of August this year, corporate loans in the secondary financial sector amounted to 178.4 trillion KRW, a 16.8% increase compared to the end of last year (152.7 trillion KRW). In particular, mutual finance institutions, which have a large proportion of loans to individual business owners, showed a relatively high growth rate. This is interpreted as an effect of the increased business difficulties faced by small business owners due to COVID-19.
Accordingly, the financial authorities plan to actively absorb funding demand through emergency management fund support programs to alleviate the difficulties of small business owners. At the same time, considering the slight rise in delinquency rates in the secondary financial sector, they intend to encourage proactive loan loss provisions and the preparation of crisis response plans.
Meanwhile, the financial authorities reviewed major risk factors in the financial market, including the upcoming U.S. presidential election on the 3rd of next month, global asset price increases, interest rate rebounds, and the possibility of won appreciation.
Regarding the U.S. presidential election, the uncertainty of the election outcome itself is a significant risk factor. Depending on the election results, differences are expected in the scale of stimulus packages, tax policies, and recovery speed. Since the asset price increase relative to the real economy after the COVID-19 pandemic is unprecedented compared to past recessions, increased volatility in asset prices is also considered a major risk factor.
Additionally, with expectations of stimulus packages, interest rates in developed countries are rising, and downward pressure on exchange rates persists depending on the flows of the U.S. dollar and the Chinese yuan. The meeting emphasized the need for policy implementation that takes these factors into account.
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