The 2025 South Korean financial market is expected to have a challenging year due to expanding political uncertainty and concerns about economic slowdown. Leaders from the financial authorities and CEOs of financial companies emphasized at a New Year's gathering that finance should act as a bulwark for the economy. To serve as an economic bulwark, finance must pursue change and innovation and stabilize the financial system. ChosunBiz met with former heads of financial authorities to ask about the path that South Korean finance should take. [Editor's note]
“Finance is like waves. There are always waves in the financial market. The existence of waves proves that the ocean is alive. Because there are waves in finance, a dynamic economic environment can be created. Of course, when the waves are strong, damage can occur. It is the role of the financial authorities to create a bulwark to ensure that damage from the waves is not excessive. Financial institutions must also have the capability to ride the high waves and advance further and faster.”
Jun Kwang-woo (76), chairman of the Institute for Global Economics, noted in an interview with ChosunBiz on the 8th regarding the current financial crisis, “The waves are strong, but capable financial authorities and financial companies can turn the current situation into an opportunity.”
Chairman Jun was the inaugural chairperson of the Financial Services Commission when it was first established in March 2008. After studying economics and business in the United States and teaching at Michigan State University, he worked as chief economist at the World Bank and vice chairman of Woori Financial Group while actively engaging as a financial expert in the private sector. He was appointed as the international financial ambassador during the Roh Moo-hyun administration in 2007 and was unexpectedly selected for the cabinet-level position of chairman of the Financial Services Commission during the Lee Myung-bak administration.
When Chairman Jun took office as chairman of the Financial Services Commission, the entire world was grappling with the global financial crisis of 2008. Chairman Jun teamed up 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. At that time, economic policy leaders were praised for their flexible responses to the financial crisis, making decisions such as bank capital increases, foreign currency swaps, and interest rate cuts.
Even after 16 years since leaving office, Chairman Jun expressed his concerns about the national economic crisis throughout the interview. During the photo session, in response to a reporter's request to smile because his expression was stiff, he replied, “The economic situation is so severe that I simply cannot smile.” When diagnosing today’s financial environment and making suggestions, he emphasized the need for crisis response capabilities with a firm voice.
—If we compare the global financial crisis experienced during your tenure as financial chairman in 2008 with the crisis facing the South Korean financial market in 2025.
“The background is very different. During the global financial crisis in 2008, the situation triggered in Wall Street, the United States, spread to our country. The epicenter of the current situation is the state of emergency declared last December. This has caused instability in the foreign exchange market and has shocked the securities market. If the causes are different, the remedies must also be different. The fundamental solution to calming the unrest in the financial market now is political stability.”
—Does this mean that the political world must unite to stabilize national governance?
“Yes. Furthermore, it will take a long time for politics to stabilize. In the long process, for the economy and finance to operate as smoothly as possible, the political sector must collaborate and provide support. National unity is always important in overcoming economic crises. Especially in the current situation, without such collaboration, it will be difficult to restore trust among domestic and foreign investors. It is important to cooperate, regardless of the ruling or opposition party.”
—The shadows of domestic recession and export downturn are expected to loom over the South Korean economy this year.
“During such times, the role of policy financial institutions becomes crucial. When the economy is in difficulty, private financial institutions focus their management on risk management. This decreases the capacity of financial institutions to provide funds to the market. It is the job of policy financial institutions to fill the shortage of funds. The Industrial Bank of Korea should encourage mergers and acquisitions (M&A) support and promote restructuring. The Industrial Bank should support small and medium-sized enterprises, while the Export-Import Bank should strengthen support for industries that enhance export competitiveness, such as nuclear power plants. Flexibility to increase the capital of policy financial institutions should also be necessary depending on the situation.”
—The management of South Korea's external creditworthiness is more important than ever.
“Last year, the government pursued a value-up policy. However, the results were not as expected. The biggest reason is politics. There has long been a saying that 'the biggest cause of the Korea discount is politics'. Regardless of which government comes to power or which party occupies a majority in the National Assembly, a message must be sent that the fundamental principles of financial and economic policy are maintained to enhance the trust of foreign investors.”
—Specifically, what kind of message is needed?
“It is to protect the market economy and to increase cooperation with free ally system countries. In Japan, even if the regime changes, the overarching policy framework remains unchanged. Major global investment institutions are located in countries that adopt market economies. Therefore, if we are pushed to the periphery of the market economy, it means distancing ourselves from global major investors.”
Chairman Jun also diagnosed the issues in the South Korean financial market that arose even before the state of emergency. He emphasized the principle of market autonomy multiple times while stating that private activities must be protected as much as possible. At the same time, he encouraged his juniors to promote restructuring policies, stating that financial authorities should proactively cut the potential risks present in the secondary financial sector.
—You mentioned that “private financial institutions focus on risk management during economic downturns.” In the New Year's speeches of the chairpersons of the four major financial holding companies this year, “strengthening fundamentals” was a common theme. Because of this, there are concerns that investments by South Korean banks in small and medium-sized enterprises and venture firms will further shrink.
“Of course, banks can be expected to invest in corporations. However, early-stage venture capital is a relatively high-risk sector. It cannot be considered the primary task of private financial institutions like banks. It is rather closer to the responsibility of policy financial institutions. For venture firms to thrive, a fundamental advancement of the capital market must be achieved so that corporations can directly raise funds through the capital market.”
—The government will continue its coexistence finance policy this year. The Financial Services Commission increased the contribution from banks by about 100 billion won this year. The Democratic Party of Korea recently abandoned a bill to disclose detailed items of bank additional charges. There are observations that both the government and the political circles are focusing their efforts on “twisting the arms of the financial sector.”
“Rather than forcibly demanding contributions from financial institutions, an environment should be created for voluntary participation in coexistence. Excessive government and political intervention in the management of financial institutions should be avoided. If the economy is like our body, finance is the heart. This heart is controlled by the autonomic nervous system. Ultimately, financial markets must be ensured to operate well according to principles, guaranteeing autonomy and responsibility. It is not right to force disclosure on banks in matters of interest rate determination. However, for sustainable management, financial institutions do need to pay attention to ESG (environmental, social, governance) management.”
—There is a constant criticism that banks easily make money through the interest rate margin (the difference between deposit and loan rates).
“It is true that the proportion of interest rate margin in total revenue of South Korean banks is larger compared to banks in developed countries. However, banks in the United States and Europe also rely heavily on interest rate margin as their fundamental profit source. During difficult economic periods like now, banks must accumulate revenue to prepare for uncertainties. Accumulating capital is necessary to absorb losses when they occur. It is not an issue that should be viewed solely in a negative light. However, banks must actively fulfill their social responsibilities to continue growing.”
—Last year, the major issue in the financial sector was the crisis of secondary finance. There are opinions that financial authorities need to initiate a restructuring of the secondary financial sector.
“I agree that a strong restructuring effort by the government is necessary. Savings banks and trust companies that are carrying the burdens of real estate project financing (PF) are experiencing deteriorating management conditions. A point to be cautious about is the potential for 'moral hazard' that may occur during the process of resolving real estate PF failures. If public funds are injected unconditionally, it sets a bad precedent where inefficient businesses can be saved by the government without accountability. Even if restructuring with public funds is conducted, policies must be designed to closely examine the responsibilities of each corporation and share losses accordingly.”
—Last year, the Financial Services Commission announced measures to normalize real estate PF in collaboration with the Ministry of Land, Infrastructure and Transport. In the secondary financial sector, there was even a critical outlook that the threshold for financial institutions to engage in real estate PF business has increased, leading to a cash crunch in the construction industry.
“I think those concerns are excessive. The proportion of the failures in real estate PF relative to the entire financial structure of our financial industry is not that large. However, since the problems related to real estate PF have not been resolved for a long time, and they can impact the financial system and construction industry, interventions from financial authorities are now necessary. In the past, during crises such as the 1997 foreign exchange crisis, the financial sector has strengthened its stability. The issues arising from the current real estate PF can be sufficiently absorbed by our financial sector.”
—If you were to identify three keywords while forecasting the South Korean financial market this year.
“High uncertainty, high volatility, and high opportunity potential. President-elect Donald Trump is an unpredictable figure. The external environment will undergo rapid changes. In a similar context, high volatility is expected. Investors must maintain a long-term perspective and pay attention to risk management. However, there could also be significant opportunities for rebound during uncertain periods. If South Korea stabilizes its domestic politics and cooperates with the diplomatic strategy of the Trump administration, it can gain various economic advantages. For example, the U.S. government has a demand for replacing naval vessels, and its shipbuilding industry is comparatively lagging. The world’s major shipbuilding powers are South Korea, China, and Japan. The U.S. is unlikely to entrust its defense to China, so competition or collaboration between us and Japan is likely to occur. We must seize this opportunity well.”
☞ Jun Kwang-woo, chairman of the Institute for Global Economics, said
▲Bachelor's degree in economics from Seoul National University ▲Master's degree in economics and business from Indiana University, United States ▲Doctorate in Business Administration from Indiana University, United States ▲Completed the senior management 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 POSCO's board of directors ▲International Financial Ambassador for the Ministry of Foreign Affairs and Trade ▲Inaugural Chairman of the Financial Services Commission ▲Chair of the Asia-Pacific Committee of the International Organization of Securities Commissions (IOSCO) ▲Chairman of the National Pension Service ▲Distinguished Professor at the Graduate School of Economics of Yonsei University.