The Financial Supervisory Service held a "financial situation review meeting" on the 16th, chaired by Lee Chan-jin, and reviewed financial market trends and internal and external risk factors following the the Bank of Korea's monetary policy committee's 0.25 percentage point hike in the base rate.
On the day, Lee said the the Bank of Korea's monetary policy committee's base rate hike was in line with market expectations. However, with volatility in the domestic stock market having expanded significantly recently, geopolitical tensions in the Middle East continuing, and the possibility of additional U.S. rate hikes still on the table, he emphasized the need to maintain thorough preparedness as financial market volatility could increase further.
Lee instructed a close review of institutional sector risk factors such as a potential deterioration in corporations' funding conditions and increased interest burdens for vulnerable borrowers due to the rate hike. First, he ordered a check on the possibility that rising market rates could make it harder for corporations to raise funds and to support smooth provision of necessary funding through banks and other financial companies.
He also asked for an assessment of how rising rates are increasing the repayment burden of debt for mid- to low-credit borrowers, small self-employed business owners, and vulnerable corporations, and to support the stable provision of productive and inclusive finance by the banking sector. In addition, to prepare for a deterioration in financial companies' soundness due to an expansion of delinquencies such as rising arrears rates, he directed guidance to strengthen soundness management through preemptive resolution of delinquent claims.
To prepare for a deterioration in funding conditions due to the rate hike, authorities will closely review the liquidity status of small and midsize financial companies and, if necessary, induce preemptive liquidity bolstering.
To prepare for the possibility that individual investors' losses could grow due to forced selling and other factors stemming from increased stock market volatility, he ordered continuous monitoring of each securities firm's margin lending and failed-settlement transactions and active responses if abnormal signs emerge. For some insurers, since higher rates could worsen soundness, authorities will induce stronger risk management by narrowing the asset-liability duration gap.
In addition, since on the 6th Seoul's foreign exchange market expanded its hours from closing at 2 a.m. to operating 24 hours from 6 a.m. Monday to 6 a.m. Saturday, authorities will closely monitor exchange rate trends and trading volumes and continuously review financial companies' conditions for foreign currency funding and management.