The net external financial assets balance in the second quarter was $64 billion, down $689.5 billion (91.5%) from the previous quarter, the Bank of Korea said on the 20th. It was the third straight quarterly decline and the largest drop since related statistics began in 1994. Net external financial assets turned positive in the third quarter of 2014 and steadily increased, surpassing $1 trillion for the first time in 2024. But they began to fall in 2025 and returned to 2014 levels.
Net external financial assets are the amount obtained by subtracting external financial liabilities held in Korea by foreigners from external financial assets held overseas by domestic residents. It is considered an indicator for assessing external payment capacity. However, the decline in these assets largely reflects the surge in the domestic stock market, which boosted the valuation of Korean stocks held by foreigners. Because this is a liability without an obligation to pay principal or interest to foreigners, side effects such as a deterioration in foreign currency liquidity are not expected to be significant.
According to the Bank of Korea's "second-quarter international investment position (preliminary)" released that day, external financial liabilities were $3.0202 trillion, up $891.2 billion from the previous quarter. External financial liabilities consist of securities investments such as domestic stocks held by foreigners, deposits foreigners place with Korean financial institutions, and borrowing fund raised by Koreans from foreigners.
Of these, securities investment rose by $859.3 billion to $2.3322 trillion, driving the overall increase in liabilities. As the domestic KOSPI rose, the valuation of Korean stocks held by foreigners also grew. Equity securities, meaning stocks, increased by $848.1 billion to $1.8606 trillion.
The Bank of Korea judges there will be no problem with foreign currency liquidity. Stocks are not liability-type products that require paying interest to foreigners or repaying principal. The Bank of Korea said, "It does not mean Korea borrowed more from abroad or that domestic corporations' contractual repayment burdens have increased," adding, "It can be assessed that the foreign currency supply-demand function remains intact."
External debt with obligations to repay interest and principal stood at $812.8 billion, up $38.4 billion from the previous quarter, a record high. This is seen as the result of an increase in external debt as foreigners invested in the Korean stock market and then sold again. When unpaid amounts from foreigners' government bonds holdings or proceeds from foreigners' stock sales increase, external debt rises.
External financial assets were $3.0843 trillion, up $201.7 billion from the previous quarter, the largest increase on record. Of this, equity securities rose by $146.2 billion to $1.1131 trillion. This means Korea is expanding its overseas stock investments.
Meanwhile, net external debt securities (external claims minus external debt) increased by $2.3 billion to $367.8 billion. External claims rose by $40.7 billion, and external debt increased by $38.4 billion. As a result, the ratio of short-term external debt to reserve assets, an indicator of foreign exchange soundness, climbed 3.1 percentage points to 46.5%.