The 2025 South Korean financial market is expected to face a challenging year due to increasing political uncertainty and concerns over economic slowdown. Leaders of financial authorities and chief executives of financial institutions emphasized during the New Year meeting that finance should serve as an economic bulwark. For finance to be a bulwark for the economy, it must pursue change and innovation, and stabilize the financial system. CHOSUNBIZ asked former heads of financial authorities about the direction Korean finance should take. [Editor's note]
“Finance is like waves. The financial market always has waves. The presence of waves proves that the sea is alive. Finance can create a dynamic economic environment because there are waves. Of course, when the waves are strong, damages occur. The role of financial authorities is to build a bulwark to prevent excessive damage from those waves. Financial companies must also prepare the capability to ride high waves to advance further and faster.”
Jun Kwang-woo (76), chairman of the Institute for Global Economics, noted in an interview with CHOSUNBIZ on the 8th that despite the current financial crisis, “Although the waves are strong, capable financial authorities and firms can turn this situation into an opportunity.”
Chairman Jun was the inaugural chairman of the Financial Services Commission when it was first launched in March 2008. Having studied economics and business administration in the U.S. and taught students at Michigan State University, he served as the chief economist at the World Bank and vice chairman of Woori Financial Group, among other roles, as a finance expert in the private sector. In 2007, he was appointed as the international financial ambassador under the Roh Moo-hyun administration and was then unexpectedly selected as minister-level chairman of the Financial Services Commission under the Lee Myung-bak administration.
When Chairman Jun took office as the chairman of the Financial Services Commission, the world was engulfed in the 2008 global financial crisis. He worked with former Minister of Strategy and Finance Kang Man-soo and former Bank of Korea governor Lee Seong-tae to lead the response to the financial crisis. Economic policy leaders at that time were praised for their flexible responses to the financial crisis, making decisions on capital expansion for banks, currency swaps, and interest rate cuts.
Even after leaving his post 16 years ago, Chairman Jun expressed his concern for the national economic crisis throughout the interview. When a reporter requested him to smile as his expression was tense during the photo session, he replied, “The economic situation is grave, and it is impossible to smile.” When diagnosing today’s financial environment and offering suggestions, he emphasized crisis response capabilities in a firm voice.
If comparing the global financial crisis experienced during your term as chairman of the Financial Services Commission in 2008 to the crisis situation facing the South Korean financial market in 2025.
“The backgrounds are significantly different. The 2008 global financial crisis was triggered by events in Wall Street, USA, which then spread to our country. The epicenter of the current situation is the emergency martial law declared last December. This has caused instability in the foreign exchange market and shocked the securities market. Different causes require different remedies. The fundamental solution to calm the current financial market's instability is political stability.”
Does this mean that the political sphere must unite to stabilize the country?
“Yes. Additionally, it will take a long time for politics to stabilize. To ensure the economy and finance operate smoothly during this protracted process, the political sphere should work together to support. National unity is always important for overcoming economic crises. Especially under the current circumstances, without such collaboration, regaining investor trust both domestically and internationally will be difficult. It is important to cooperate across political lines.”
The shadows of sluggish domestic demand and export recession are expected to loom simultaneously over the South Korean economy this year.
“During such times, the role of policy financial institutions is crucial. When the economy faces difficulties, private financial firms focus their management on risk management. This reduces their capacity to provide funds to the market. It is the job of policy financial institutions to fill the gap in dwindling fund supply. The Korea Development Bank should encourage mergers and acquisitions (M&A) support and promote restructuring. Industrial Bank should support funds for small and medium-sized enterprises, and Export-Import Bank should strengthen its support for industries aimed at enhancing export competitiveness, such as nuclear power plants. Depending on the circumstances, flexibility in raising funds for policy financial institutions is also necessary.”
Maintaining South Korea's financial credibility abroad is more important than ever.
“Last year, the government pursued a value-up policy. However, the effects were not as expected. The biggest reason is politics. There has long been a saying that ‘the main reason for the Korea discount is politics.’ Regardless of which government takes office or which political party holds the majority in the National Assembly, the message should be conveyed that the fundamental principles of financial and economic policy remain intact to enhance overseas investors' trust.”
What specific messages are needed?
“It is to protect the market economy and increase cooperation with free ally countries. In Japan, even when the administration changes, the major policies do not change. Major global investment institutions are located in countries that have opted for a free market economy. Hence, if we are pushed to the periphery of the market economy, it means distancing from major global investors.”
Chairman Jun also diagnosed the issues in the South Korean financial market that arose before the emergency martial law. He emphasized several times the principle of market autonomy, stating that private activities must be maximally protected. At the same time, he encouraged his juniors to promote restructuring policies, stating that the financial authorities must boldly cut out potential risks present in the secondary financial sector.
He mentioned that “private financial institutions focus on risk management during economic recessions.” In this year’s New Year speeches from the heads of the four major financial holding companies, “strengthening fundamentals” was a common thread. This raises concerns that investments in small and medium-sized corporations and venture firms by South Korean banks will become even more limited.
“Of course, banks are expected to invest in corporations. However, early-stage venture investments are relatively high-risk areas. It cannot be regarded as the banks' primary duty. It is closer to the responsibility of policy financial institutions. For venture companies to thrive, a fundamental advancement of the capital market must occur to allow corporations to directly procure funds through the capital market.”
The government continues to pursue win-win finance policies this year. The Financial Services Commission raised the bank contribution fee by approximately 100 billion won this year. The Democratic Party of Korea recently abandoned a bill to disclose the detailed items of bank additional charges. There are critiques that the government and the political sphere are focusing on 'twisting the arms of the financial sector.'
“Rather than forcibly demanding contributions from financial firms, an environment should be created for voluntary participation in win-win initiatives. Excessive government and political interference in the management of financial firms should be avoided. If the economy is our body, finance is the heart. This heart is regulated by the autonomic nervous system. Ultimately, the financial market should be allowed to operate well according to principles, guaranteeing autonomy and responsibility. It is also inappropriate to compel the disclosure of banks' interest rate decisions. However, for sustainable management, financial institutions should themselves pay attention to ESG (Environment, Social, Governance) management.”
There are always allegations that banks easily make money through the interest rate spread (the difference between deposit and loan interest rates).
“It is true that the proportion of interest margin in total revenue for South Korean banks is larger compared to advanced countries. However, banks in the U.S. and Europe also consider interest margins as their most basic revenue source. During such economically challenging periods, banks must accumulate revenue to prepare for uncertainties. By building capital, they can absorb losses when they occur. It is not appropriate to view interest margins only negatively. However, for banks to continue to grow, they must actively fulfill their social responsibilities.”
Last year, a major topic in the financial sector was the crisis of the secondary financial sector. There are opinions that financial authorities must initiate restructuring in the secondary financial sector.
“I agree that strong restructuring efforts from the government are needed. Savings banks and trust firms are facing deteriorating management conditions due to weaknesses in real estate project financing (PF). Caution must be exercised regarding the phenomenon of 'moral hazard' that may arise during the process of addressing real estate PF weaknesses. If public funds are injected unconditionally, it sets a wrong precedent that carefree business operations will be rescued by the state. Even if restructuring with public funds is conducted, policies must be designed to closely examine each corporation's responsibilities and share the losses.”
Last year, the Financial Services Commission, together with the Ministry of Land, Infrastructure and Transport, announced measures for normalizing real estate PF. There are critical forecasts that the threshold for financial firms' real estate PF projects will increase, causing a cash crunch in the construction industry.
“I believe these concerns are excessive. The share of real estate PF weaknesses within the overall financial structure of our financial industry is not that large. However, since the issues related to real estate PF have not been resolved over a long period, it could affect the financial system and the construction economy, so intervention from financial authorities is now necessary. The financial sector has developed soundness even during past crises such as the 1997 foreign exchange crisis. The current issues arising from real estate PF are issues that our financial sector can sufficiently absorb.”
If you were to identify three keywords while forecasting the South Korean financial market this year.
“Three highs (三高): high uncertainty, high volatility, and high opportunity potential. President Donald Trump is an unpredictable figure. The external environment will change rapidly. In the same context, high volatility is expected. Looking from the standpoint of investors, especially in the stock market, a long-term perspective should be maintained while careful of risk management. However, even in an uncertain period, there could be significant opportunities for rebounds. If domestic politics stabilize and align with the foreign policy strategy of the Trump administration, South Korea could gain various economic benefits. For instance, the U.S. government has a demand to replace naval vessels, but U.S. shipbuilding expertise is relatively lagging. The three major global shipbuilding powers are Korea, China, and Japan. The U.S. will not entrust defense to China, so competition or collaboration will happen between us and Japan. It is important to seize this opportunity well.”
Jun Kwang-woo, chairman of the Institute for Global Economics
▲Bachelor's degree in economics from Seoul National University ▲Master's degree in economics and business administration from Indiana University, USA ▲Doctorate in business administration from Indiana University, USA ▲Completed the executive program at Harvard Business School and the Wharton School of the University of Pennsylvania ▲Professor at Michigan State University ▲Chief economist at the World Bank ▲Director of the International Financial Center ▲Vice chairman of Woori Financial Group ▲Chairman of Deloitte Korea ▲Chairman of the board at POSCO ▲International financial ambassador of the Ministry of Foreign Affairs and Trade ▲Inaugural chairman of the Financial Services Commission ▲Chair of the Asia-Pacific Regional Committee of the International Organization of Securities Commissions (IOSCO) ▲Chairman of the National Pension Service ▲Endowed professor at Yonsei University’s Graduate School of Economics