Financial Situation Review Meeting After 0.25%p Interest Rate Cut on the 11th
Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), regarding the first interest rate cut in three years, stated, "With the interest rate cut, household debt may expand at any time due to expectations of rising housing prices," and urged meticulous management of anticipated risk factors by sector.
On the 11th, immediately after the Bank of Korea lowered the base interest rate by 0.25 percentage points, the FSS held a financial situation review meeting chaired by Governor Lee.
At the meeting, Governor Lee pointed out that despite the base rate cut, market interest rates had already anticipated this and were lower than the base rate. Considering the expansion of market funding demand, he assessed that uncertainty in the financial market, including the future direction of market interest rates, remains high. Governor Lee urged thorough preemptive inspection of the impact and risks on the financial market and financial institutions to ensure no side effects occur.
He particularly expressed concern about household debt, noting that due to expectations of rising housing prices following the rate cut, household debt could expand at any time, and called for financial institutions to make their own management efforts. He emphasized the need to be prepared to boldly implement supervisory measures promptly if necessary.
Governor Lee also instructed detailed management of risk factors by sector resulting from the interest rate cut. Regarding the cleanup of PF (Project Financing) distressed sites, he directed active clearance through auctions and forced sales. According to the FSS, as of the end of September, out of 12 trillion KRW subject to auctions and forced sales, 1.5 trillion KRW has been cleared, procedures for 6.7 trillion KRW are underway, and 3.8 trillion KRW are scheduled for processing.
To manage the soundness of small and medium financial institutions, he requested focused inspection of delinquency rate management plans and prompt clearance inducement. Regarding corporate restructuring, he directed the promotion of ongoing restructuring through regular credit risk assessments by creditor banks, which will continue until the end of November. For the insurance industry, he ordered comprehensive impact assessments under various interest rate scenarios and delicate system operation.
Governor Lee urged efforts to ensure that the positive effects of the interest rate cut spread throughout the economy. He especially emphasized improving lending practices by financial institutions so that vulnerable low-income borrowers can feel the relief in interest repayment burdens. Additionally, he requested close monitoring of loan-deposit interest rate trends to ensure that the effect of the base rate cut is reflected in existing household loans.
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