Korea urged to curb household debt

The foreign financial community urged the country’s regulators Tuesday to keep rising household debt in check as it could hinder growth and efforts for structural reforms, amid numerous challenges faced by the Korean economy this year.

As Korea is Asia’s fourth-largest economy and has achieved resilient growth over the years, the country’s “debt is manageable,” said Philippe Noirot, country head of BNP Paribas Korea, at the 8th FSS SPEAKS hosted by the Financial Supervisory Service in Seoul.

But it remains higher than other members of the Organization for Economic Cooperation and Development, he added, citing 2014 OECD data on the ratio of household debt to net disposable income.

Korea’s ratio stood at 164 percent, well above the U.S.’ 113 percent, Japan’s 129 percent and Germany’s 93 percent. According to the latest data by the Bank of Korea, the country’s household debt reached 1,207 trillion won ($1.03 trillion) as of end-2015.

Other critical issues facing Korea’s export-driven economy include high youth unemployment and an ageing population.

“Unemployment, while an issue, is rather low compared with European Union. ... Korea is facing much shorter time than needed by any other country (to become) from an aged to superaged,” Noirot said at the 8th FSS Speaks forum hosted by the FSS in Seoul on Tuesday.

The FSS has put regulatory oversights of household and corporate debt on its priority list this year, with FSS governor Zhin Woong-seob stressing the need to pay special attention to them to ensure market stability.

“We will improve credit oversight system to bring about a soft landing of household debt and tighten oversight of corporate debt risks,” Zhin said in his opening speech at the forum.

Also during the sessions introducing Korea’s regulations, Kim Hak-kyun, deputy chairman for FSS’ international affairs reiterated that it would take preemptive measures to prevent household debt from adversely affecting Korea’s drive for financial reforms and soundness.

This will be part of the regulatory body’s three initiatives to gain public confidence and trust:  improving financial supervision, expanding technology financing for the development of a creative economy, and spurring the convergence of technology and finance.

“The reforms include assessing soundness and sanctioning institutions, (previously) from identifying violations and sanctioning individuals for the violations,” Kim told a group of foreign businessmen.

“The FSS will play a role of an umpire, from being a coach.”

This means it will give financial companies more autonomy but more responsibility to provide innovative products and services, as well as support for household wealth growth.

Kim Young-ki, deputy governor of FSS, also said that the regulator will eliminate customary auditing and supervision, and conduct them only when necessary.

“We will allocate supervision to financial firms that pose a systemic risk,” he said.

Other recommendations by the foreign financial community included enabling foreign investors to participate in Korea’s economic reforms, further lowering restrictions between banking and brokerage businesses, and levies on offshore debt amid global uncertainty and decreasing margins.

By Park Hyong-ki (hkp@heraldcorp.com)