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Jan 06, 2016
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Jan 05, 2016
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Dec 30, 2015
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Dec 17, 2015
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Dec 16, 2015
- FSC-FSS Meeting for Monitoring Financial Market Conditions
- The FSC and the FSS held a meeting to make sure that Korea’s financial markets are prepared for the impact of the Fed’s possible rate hike. RECENT TRENDS IN CAPITAL FLOWSThe expectation of a U.S. rate increase weighs on global stock markets. External risk factors prompt volatility in Korea’s financial market with foreigners’ net selling of stocks and investors’ appetite for safer assets. Kospi fell 3.0% in recent days(Dec.1~Dec.15), while the yield on 3-year government bonds dropped 5.2bp in the same period. However, the general market view is that capital outflows would not be expanded sharply, looking into characteristics and causes of recent outflows. In 2015, foreign investors sold an average of KRW 1.7 trillion per month in the stock market, which is less than the net selling of KRW 2.5 trillion per month for the past 10 months and less than the net selling of KRW 2.4 trillion per month in the following months of the so-called ‘taper tantrum’ (March~June 2013). Since September this year, oil producers like Saudi Arabia have been leading foreign net selling as their fiscal conditions deteriorate with falling oil prices. The net selling mode is hardly related to changes in foreign investors’ appetite to Korean stocks. US funds, which represent a largest share of Korea’s stock market(40%), continue to remain net buyers in November and December amid rising possibility of a U.S. interest rate increase. European funds sold a net KRW 10.2 trillion of Korean shares from June to September this year, but the pace of selling has slowed since then. STOCK MARKET The Korean stock market is expected to face turmoil in the short term after the Fed’s decision. However, many investment banks forecast that the Kospi will gradually bounce back to a level of 2,100 or beyond in 2016. Given strong fundamentals of the Korean economy, undervaluation of Korean stocks could appeal to investors once the Fed’s rate hike finally removes uncertainty. The FSC will closel
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Dec 14, 2015
- Policy Direction for Household Debt Management
- The FSC announced its policy direction for household debt management and a guideline to encourage banks to strengthen their mortgage application screening so that borrowers take out loans within their repayment ability and repay in installments from the beginning. HOUSEHOLD DEBT GROWTH POLICY DIRECTION Korea’s household debt grows fast to amount to KRW 1,166 trillion at the end of September 2015. The rapid growth is attributable to a combination of several factors such as growing demand for loans amid low interest rates, eased restriction on lending for home buyers and housing market recovery.The increase is mainly from mortgage lending by banks, which is at lower interest rates and maintains soundness. In particular, group lending for apartment buyers has largely increased as markets for new apartments for sale and reconstruction recover. Since the government-backed program to improve mortgage debt structure was launched in March this year, shares of amortized and fixed-rate mortgages rose to 37.5% and 33.6% respectively out of the total mortgage lending by banks at the end of September 2015, compared to 6.4% and 0.5% at the end of 2010. As household debt grows faster than household income, the government is taking comprehensive measures to 1) increase household income to boost borrowers’ repayment ability, 2) improve household debt structure; and 3) support low-income households. It is all the more important to improve structural soundness of household debt in response to potential risks such as the U.S. interest rate hikes. Household debt management policy also requires a balanced approach which takes into account various factors such as private consumption, housing market conditions and regulatory effects on the real economy. Therefore, the government is working towards minimizing potential risks in household debt, consistently upholding the principle that household debt should be borrowed within the borrower’s repayment ability and paid back in installmen
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Dec 09, 2015
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Nov 29, 2015
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Nov 27, 2015
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Nov 02, 2015
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Nov 01, 2015
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Oct 30, 2015
- Direction for Recovery and Resolution Regimes
- CONTEXT AND PROGRESSAfter the Global Financial Crisis, there was a global consensus for the need of improving recovery and resolution regimes to prevent disorder in the financial market when financial conglomerate becomes insolvent and moral hazard of too-big-to-fail. At the G20 Summit in 2010, member countries agreed on adopting recovery and resolution plans (RRP) in line with the Key Attributes of Effective Resolution Regimes for Financial Institutions published by the Financial Stability Board for Systemically Important Financial Institutions (SIFIs). After close consultations with the relevant organizations and experts from financial and legal sectors, the Financial Services Commission (FSC) has determined the basic direction for improving the recovery and resolution regimes, namely introducing recovery and resolution planning framework and bail-in scheme. MAJOR CHANGES(1) Recovery and Resolution PlansRecovery and resolution plans assuming crisis situation will be produced on an annual basis and retained for that year, for major financial institutions identified as SIFIs. Recovery plan is financial institution’s ex-ante measures against insolvency, which aims to facilitate recovery of financial soundness through its voluntary normalization efforts. The plan will be drafted by each SIFI, assessed by the Financial Supervisory Service and reported to the FSC.Resolution plan, on the other hand, is an ex-ante plan drafted by the Korea Deposit Insurance Corporation and assessed by the FSC, to minimize negative impact on financial system after a troubled financial institution fails to recover its business based on voluntary endeavors. (2) Bail-in SchemeThis scheme is designed to require not only shareholders but also creditors to bear losses when a financial institution becomes bankrupt, thereby addressing moral hazard. The FSC is planning to provide a legal basis for ordering insolvent financial institution to convert debt to equity and/or write-off debt when deemed
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Oct 30, 2015
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Oct 22, 2015
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Oct 19, 2015
- FSC Roadmap for Insurance Business Reform
- BACKGROUNDKorea’s insurance industry has rapidly grown since 2000 to become the world’s eighth largest market with its total assets worth KRW 862 trillion, representing 19.8% of the Korean financial industry’s total assets, and 440,000 employees which account for 55.1% of the financial industry’s workforce. However, excessive ex-ante regulations on insurance policies and premiums stifled competition and innovation in insurance business, weakening the industry’s growth momentum. The FSC, therefore, outlined its plan to overhaul the regulatory framework on insurance business, which will be a remarkable reform initiative in 22 years since the insurance liberalization of 1993. Under the roadmap, the FSC will shift its regulatory focus from ex-ante regulations to ex-post supervision to promote price and service competition in insurance business, while strengthening the protection of policyholders and the financial soundness of insurance companies. MAJOR REFORMS1. GIVE INSURERS MORE AUTONOMY IN DEVELOPING INSURANCE PRODUCTS In principle, insurance companies will be no longer required to report their new products to the financial authorities prior to the sale, except for mandatory insurance and insurance products with new types of risk coverage. (Scheduled to be implemented in April 2016 after relevant regulations are amended) Standard insurance policies established by the financial authorities will be abolished to encourage insurers to develop more diverse insurance products. Necessary provisions such as protection of policy holders will be set out in relevant regulations. For indemnity and car insurance policies that need standardization, the industry association will be required to establish standard policies to report to the FSS. (Scheduled to be implemented in the second half of 2016 after consultations with the industry and amendments to relevant regulations) 2. REFORM PRICING REGULATIONS The liberalization of insurance premiums in 1993 allowed insurance co
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Oct 16, 2015
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Oct 02, 2015
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Sep 07, 2015
- China's Economic Slowdown and Its Impact on Korea's Economy
- CHINA’S ‘NEW NORMAL’The IMF recently downgraded China’s economic growth forecast in 2015 and 2016 to 6.8% and 6.3% respectively, slower than the stable growth of 7% in three years since 2012. The growth rate of around 6% is still high, given the size of China’s GDP; however, the actual impact of such slowdown from 7% to 6% could be felt far more profound. China’s slowdown is attributed to excessive and inefficient investments by its massive economic stimulus plan. Inventory adjustments and deleveraging will weigh on China’s economy for a considerable period of time. It will be difficult to resolve oversupply in property market in a short period. To manage a soft landing of Chinese economy, the Chinese government set out a new economic model, so-called ‘Xin Chang Tai(新常態, new normal)’ since President Xi Jinping came to power in 2013. The new growth model is aimed to shift Chinese economy from export-driven rapid growth to consumption-led stable growth. It also includes structural reform, diversification of growth drivers and liberalization of financial markets. The effectiveness of the Chinese government’s stimulus plan to downward pressure is key to a soft landing of Chinese economy as it would take time for structural reform to achieve results. The Chinese government still has capability to prevent a hard landing of Chinese economy. However, emerging economies also need to be prepared in response to the spill-over effect of China’s new normal. IMPACT ON KOREA’S FINANCIAL MARKET There is a possibility that volatility might increase due to worries over China’s economic slowdown and potential spill-over effects of its structural reform. However, market participants view that it is unlikely for Chinese slowdown to cause a serious financial crisis. Since the 2008 global financial crisis, Korea’s economic fundamentals have been steadily improved. Its current surplus has grown to USD 89.2 billion in 2014 from USD 3.2 billion in 2008; its
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Sep 04, 2015
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Aug 25, 2015
- Opening Remarks by FSC Chairman at Market Monitoring Meeting over Current Stock Market Conditions
- The FSC Chairman Yim Jong-yong convened a meeting with the FSS, KRX, and KCIF at 7 a.m. on August 25 to monitor global and domestic financial market conditions and to discuss measures to weather through the current market turmoil. *Please find in the following the summary of the Chairman’s opening remarks at today’s meeting. ***********Korea’s stock market is undergoing tough times with heightening concerns over external factors such as China’s stock market plunge, the Chinese yuan devaluation and the prospect of Fed’s rate hike. The KOSPI has sharply fallen to a year-low of 1,829.81 on August 24 from the year’s high of 2,173.41 on April 23 2015, as global stock markets tumble. Foreign investors turned net sellers since June this year. Korea’s stock market, however, fell less than other major markets in the Asia region. Stock prices in Korea dropped 13.5% compared to the end of May this year, while 30.4% in China, 22.5% in Hong Kong and 23.6% in Taiwan. The amount of net sales by foreigners in Korean stock market is relatively small. Foreign investors sold 0.36% of market capitalization in Korean stock market from June to August, while 0.51% in Taiwan, 0.49% in Thailand, 0.51% in Malaysia over the same period. These are evidence that market participants home and abroad see Korea’s market fundamentals sound. As external uncertainties seem to continue for some time, I would like to ask relevant institutions to join our efforts and take actions to reduce volatility in Korea’s capital markets. To this end, we need to continue our efforts to restore market confidence and keep foreign investors informed accurately about Korea’s economy and financial sector. In the longer term, it is important to make Korea’s capital markets robust enough to withstand external shocks by pushing ahead structural reforms and strengthening competitiveness of our capital markets. I would like to ask heads of relevant institutions here today to join our efforts on the foll
