Financial chiefs look toward new growth momentum in 2020

Gearing up for the new year, South Korea’s top financial officials steeled themselves to face persistent external challenges and to spark new momentum for growth.

Given the current trend toward low interest rates, which is likely to last for a while, policymakers vowed further efforts to steady the consequent overheating of the real estate market, saying this excessive liquidity needs to be diverted to innovative businesses.

“We need to maintain an easing monetary policy as the domestic economy faces a slow growth pace and weak inflationary pressure on the demand side,” said Bank of Korea Gov. Lee Ju-yeol in an address to employees.

“Our midterm goal is to support the recovery of the economy and help market prices settle within the target range.”

The BOK forecast that the economy will expand 2.3 percent in 2020, short of the theoretical growth potential of 2.5-2.6 percent. The nation’s inflation rate for 2019 stood at a record low of 0.4 percent, much lower than the BOK’s target 2 percent.

The central bank leader also promised to pay further attention to communication so that the public can understand the delicate policy decisions needed to harmonize price stabilization and financial stabilization.

Meanwhile, the financial authorities called on the financial sector to make strides forward and nudge the economy into a rebound.

“I am well aware that negative perspectives toward finance continue to exist (despite the policy achievements in 2019),” said Eun Sung-soo, chairman of the market regulator Financial Services Commission, in his New Year’s address.

“It is therefore our key task to further develop our progress so that the people may actually feel the financial changes.”

The FSC chief called on the financial industry to play a more active role in the nation’s economy.

“The role of finance is not to sit behind and watch. It should move in step with the real economy, and each should seek to make up for the other’s blind spots,” he said.

Pointing out that market liquidity has focused excessively on real estate, instead of real industries, the chairman vowed to follow up the latest policy actions by adding momentum to regulations. On Dec. 16, the government unveiled a comprehensive set of rules to steady the housing market, including unprecedented bans on mortgage loans for expensive houses.

“This year, we shall see to it that liquidity flows from households to corporations, especially small and medium-sized ones with innovative technology and growth potential,” Eun said.

The market watchdog Financial Supervisory Service focused on consumer protection and potential risks arising from the overheated housing market and consequent household debts.

“As the nation’s risk manager, we should make all efforts to maintain the stability of the financial system in the face of various potential risks,” Yoon Suk-heun, governor of the Financial Supervisory Service, said in an address to employees.

While marginal companies and owner-operators have been weighed down by an increasing number of nonperforming loans, the real estate sector is absorbing most of the market liquidity, consequently expanding household debt risk, according to Yoon.

The FSS chief also vowed to reinforce the monitoring system for high-risk, high-income financial products for the sake of protecting consumers.

He was referring to the massive losses incurred last year due to the misselling of derivative-linked funds and securities. The FSS came up with an arbitration plan, advising sellers including Woori Bank and KEB Hana Bank to provide individual compensation of up to 80 percent of the damages.

“The advancement of fintech and (customers’) drive for high incomes amid a low interest rate trend have increased the imbalance of information between financial companies and consumers,” Yoon said, citing the upcoming enactment of a new bill on financial consumer protection.

The Korean Federation of Banks suggested specific midterm targets.

“(Financial companies) need to enhance their global competitiveness by expanding their overseas business,” said KFB Chairman Kim Tae-young.

Overseas business currently accounts for 5 percent of Korean banks’ total assets and 7 percent of their net profit, according to KFB data.

Citing the so-called 10-20-30 strategy, Kim urged local banks to improve those figures to 20 percent or more within the next 10 years and recommended that top-tier financial groups aim for 30 trillion won ($25.9 billion) in market capitalization.

By Bae Hyun-jung (tellme@heraldcorp.com)