Majority of experts see chance of ‘systemic risk’ in 3 years

A survey of local financial experts conducted by the Bank of Korea in July showed that a majority of them see a high chance of a “systemic risk” occurring in the next three years.

Of the 74 respondents, 52.7 percent said the possibility of a systemic risk, or the risk of collapse of an entire financial system or entire market, occurring between one to four years from now was high. Twelve percent answered the opposite.

As for the probability of a systemic risk occurring within a year, 27.1 percent replied “high” and 32.4 percent “low.”

The survey of 74 heads of strategy and risk management departments at financial institutions and financial market participants including fund managers showed that mounting household debts and the long-standing property market slump pose huge risks for the nation’s financial system.

They also picked the European sovereign debt crisis, soft landing of the Chinese economy and delayed recovery of the U.S. economy as major threats to the financial system.

Political or geopolitical risks and rapid foreign capital flight, which were among the five biggest risks in the previous survey in January, were replaced by household debt and the sluggish real estate market.

Nine out of 10 respondents chose the deepening European debt quandary in last month’s survey in which they were asked to select five major risks.

Eighty-nine percent picked the household debt problem, followed by the stagnant property market (73 percent), soft landing of the Chinese economy (64.9 percent) and delayed recovery of the U.S. economy (37.8 percent).

As Korea’s foreign reserve remains stable, there is a broad market perception that the country can withstand short-term risks such as the worsening sovereign debt crisis in Europe, the central bank said.

Market participants believe the probability of mid- to long-term risks including the snowballing household debt, on the other hand, is rising and their impact will be huge, the BOK said.

Thirty-nine percent said they had high confidence in the stability of Korea’s financial system over the next three years, compared to 16.2 percent who responded “low.”

By Kim So-hyun (sophie@heraldcorp.com)