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Nov 03, 2020
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Oct 28, 2020
- Government to Closely Monitor Market Risks
- The FSC held the 27th financial risk assessment meeting via teleconference on October 28, chaired by Secretary General Kim Tae-hyun. During the meeting, officials discussed issues surrounding the US presidential election, recent trends in the corporate bond and CP markets, anticipated discontinuation of LIBOR and other market conditions.(RISK MONITORING) Market experts noted that the US presidential election, soaring global asset prices and the possibility of an interest rate hike and currency appreciation as potential external risks to the Korean economy. First, uncertainties surrounding the outcome of the US presidential election and the ensuing policy disparities on COVID-19 stimulus, tax policy and the recovery pace pose risks to the economy. Second, as asset prices have seen a steep rise, price volatility may pose another risk. Third, due to expectations of stimulus measures, interest rates have gone up in advanced economies, and depending on the movement of the dollar and yuan, there exist downside currency risks in the Korean economy.(CORPORATE BOND CP MARKETS) Despite the general recovery trend in corporate bond and CP markets due to the government’s market stabilization efforts, there still exist disparities between low-rated and blue chip companies as well as between the corporate bond market and short-term money markets. The continuous decline of the spread of low-rated corporate bonds since June is a positive sign. However, the pace of the decline has been slow compared to high-rated bonds with the volume of total issuance yet to reach the level seen in the previous year. On the other hand, the low-rated CP and short-term debt issuance amount has recovered to a comparable level from the previous year. The FSC will continue to closely monitor corporate bond and CP markets and take stabilization measures using an SPV when deemed necessary.(DISCONTINUATION OF LIBOR) With regard to the anticipated discontinuation of LIBOR from 2022, financial institutions
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Oct 20, 2020
- Vice Chairman Stresses Importance of Steady Financial Support for Small Businesses
- Vice Chairman Sohn Byungdoo held the 26th financial risk assessment meeting via teleconference on October 20 to discuss the implementation status of the COVID-19 emergency financial support programs.The following is a summary of Vice Chairman Sohn’s remarks.(CURRENT ECONOMIC CONDITIONS) As some of the key economic indicators have shown signs of an improvement recently, the IMF revised up its global growth forecast from a 5.2 percent drop to 4.4 percent decline. The Korean economy also has been on a recovery path, as exports rebounded in September for the first time since the outbreak of the COVID-19. The recently adjusted social distancing rules and the government’s fiscal efforts are expected to help boost domestic demand. With a resurgence of COVID-19 being the biggest threat to economic recovery, financial institutions should closely adhere to the safety and preventive measures.(STEADY SUPPORT FOR SMALL MERCHANTS) The structural changes caused by the COVID-19 pandemic present both challenges and opportunities. Although there are positive effects, such as a transition toward a digital and green economy, heavier burdens may be placed on the vulnerable groups including small merchants as some expect to see a K-shaped recovery. Since the improvements to the second round of financial support program for small merchants became available on September 23, the provision of lending support to small merchants has continued to increase. As this program is backed by guarantees from the Korea Credit Guarantee Fund, it is essential that lending support is made available to small merchants with different credit backgrounds, including those with unfavorable credit history.With growing numbers of small merchants experiencing business closures, it is necessary to keep in place a policy that supports their comeback. Since last November, the FSC has made available a one-stop consulting program for self-employed small business owners who have experienced business closures due to t
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Oct 19, 2020
- FSC Holds Kick-off Meeting to Root Out Unlawful Trading Activities in Stock Markets
- Vice Chairman Sohn Byungdoo held a kick-off meeting of the task force on the prevention of unlawful and unfair trading activities in stock markets on October 19. The task force will operate until the end of March 2021 and regularly report its implementation status on a monthly basis.The following is a summary of Vice Chairman Sohn’s remarks.BACKGROUNDDue to the rapid spread of COVID-19 around the world, domestic stock markets plunged at the beginning of the year. However, stock prices quickly recovered to the pre-pandemic level backed by the strong fundamentals of the Korean economy, prompt implementation of the emergency financial support programs and the effective K-quarantine measures. Moreover, an upsurge in the trading volume by retail investors also contributed to the quick market recovery. The retail investors’ growing interest in stock investment is a positive sign. However, without a fair market order, investors’ trust in the market may crumble and the recent investment boom may end up as a short-lived one, preventing a further advancement of stock markets.With abundant market liquidities flowing into stock markets, it has become all the more necessary to pay attention to the growing concerns about illegal and/or unfair trading activities in the stock markets.POTENTIAL ISSUESThe recent trends in stock market activities reveal the following three potential problems. First, due to the rising market volatility, there are growing risks of unfair trading activities surrounding particular groups of stock items, such as COVID-19 and “untact” sectors. In addition, as the period of short-selling ban was extended until March 15, 2021, it has become necessary to closely monitor illegal short sale activities during this period, including naked short-selling. Second, unfair trading activities including price manipulation are being carried out in a more organized and complex manner. However, the current system from the detection to punishment stage takes a long
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Sep 23, 2020
- Vice Chairman Pledges to Stay Alert for Potential Risks in Financial Markets
- Vice Chairman Sohn Byungdoo held the 22nd financial risk assessment meeting via teleconference on September 23 and discussed market conditions and issues concerning household loans, soundness of financial institutions and corporate credit situation with relevant authorities.The following is a summary of Vice Chairman Sohn’s remarks.(FINANCIAL MARKET CONDITIONS) The corporate bond and short-term money markets showing signs of liquidity crunch at the end of March have largely improved due to prompt market stabilization measures taken by the government. Market experts forecast that the current stability will continue throughout the end of September given sufficient liquidity in the market. However, as there are potential risks related to COVID-19, relevant authorities should continue to closely monitor markets. The financial authorities will work to prevent an end-of-quarter credit crunch through various market stabilization measures already put in place.With regard to stock market conditions, there are possibilities of rising volatility given uncertainties surrounding the US presidential election, US-China relations, etc. There are also concerns about a growing number of retail investors taking out loans to invest in stocks including in overseas stock markets where there may not be adequate information available to them. As such, retail investors should be well aware of the risks involved in overseas stock investment, and financial institutions should make sure that investor protection measures are closely being observed in this regard.(HOUSEHOLD LOANS) The recent spike in household loans was caused in part by rising demand for loans by those undergoing difficult situations. However, a recent trend reveals that high income earners with high credit scores are increasingly turning to credit-based loans. As such, lending institutions should closely review borrowers’ debt service capabilities and monitor concentration of excessive liquidity in property markets, etc.(S
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Sep 01, 2020
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Aug 24, 2020
- Vice Chairman Discusses Preemptive Responses to Potential Risks amid Growing Uncertainty
- Vice Chairman Sohn Byungdoo presided over the 18th financial risk assessment meeting on August 24 to review market conditions and monitor the progress in implementing the COVID-19 financial support.The following is a summary of Vice Chairman Sohn’s remarks.(CURRENT MARKET SITUATION) The government’s effective response to Covid-19 and aggressive financial support have helped to maintain stability in financial markets. The KOSPI has recovered to pre-crisis levels, gaining 58.1 percent from its lowest in mid-March. Corporate bond and short-term money markets also have shown signs of overall recovery, although some low-rated companies still face difficulties in securing funds. However, the government should remain vigilant as the recent resurgence of Covid-19 cases heightens uncertainty in financial markets and the real economy. In response to the possibility of a protracted pandemic crisis, the government will closely monitor risk factors and take preemptive measures when necessary.(FINANCIAL MARKET MONITORING) With low interest rates, funds searching for higher returns have been increasingly flowing into stock and property markets, prompting a surge in asset prices. As the concentration of funds to certain assets along with growing debt could pose potential risks to financial markets, the government has been closely monitoring market activities.For the stock market to grow into a sustainable and attractive investment destination, the government needs to ensure the sound operation of the market and encourage more listings of promising companies. To this end, the government will come up with comprehensive measures for prevention, investigation and punishment to root out unfair transactions such as market manipulation, while improving regulations to help channel more funds into innovative businesses with long-term perspectives.(IMPLEMENTATION OF HOUSING MARKET MEASURES) The government has taken a series of measures to curb speculative demand in housing markets, while
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Aug 19, 2020
- Vice Chairman Speaks about Importance of Maintaining Lending Support by Financial Institutions
- Vice Chairman Sohn Byungdoo presided over the 17th financial risk assessment meeting on August 19 to review market conditions and monitor the progress in implementing the COVID-19 financial support programs.The following is a summary of Vice Chairman Sohn’s remarks.(CURRENT PANDEMIC SITUATION) In response to the recent spike in the number of COVID-19 infections, the government has reinstated the level-2 social distancing measures today. Preventing further waves of infection remains the most urgent task. A successful economic turnaround achieved from earlier this year was made possible through effective K-quarantine measures. In order to maintain the recovery momentum, financial institutions should closely follow the enhanced K-quarantine guidelines within their workplace.(FINANCIAL RELIEF FOR TORRENTIAL RAIN VICTIMS) The longest recorded monsoon this year (54 days) has incurred heavy damages to households and businesses. The victims of torrential rains face extra hardship amid the pandemic-related economic disruptions. In order to help the businesses and households hit by heavy rains, the government will operate one-stop financial support centers throughout the affected regions and make prompt and targeted assistance available.(STRONG LENDING SUPPORT AMID PROTRACTED PANDEMIC SITUATION) As there are concerns about a protracted pandemic situation, the government will work to finalize its decisions on whether to extend the temporary relief measures, such as loan maturity extensions, deferral of interest payments and some of the temporary deregulatory measures, within August. In an economic downturn, individual financial institutions may become passive in lending. However, each institution’s “own actions can collectively influence the overall risk in the system,” as there is a danger of a fallacy of composition suggested by a BIS report in April. Thus, it is necessary to continue to encourage all financial institutions to support lending in order to maintain the
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Aug 11, 2020
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Jul 28, 2020
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Jul 21, 2020
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Jul 17, 2020
- SPV to Start Purchasing Corporate Bonds and CP
- The government announced the official launching of the special purpose vehicle intended to support businesses facing liquidity problems by purchasing corporate bonds and CP on July 17.BACKGROUNDThe government, the Bank of Korea and the Korea Development Bank unveiled a joint plan for creating an SPV on May 20. Since then, the relevant institutions have worked toward the official launching of the SPV on July 14. In the meantime, the passage of the 3rd supplementary budget at the National Assembly enabled capital injection of KRW1 trillion to KDB. Between May 20 and July 13, the KDB purchased KRW300 billion worth of low-rated corporate bonds to help stabilize markets before the launching of the SPV. In addition, the Bank of Korea announced its decision to lend KRW8 trillion to the SPV on July 17.KEY DETAILS(SIZE) Up to KRW10 trillion made up of KRW1 trillion (10%) in equity capital from KDB, KRW1 trillion (10%) in subordinated loans from KDB and KRW8 trillion (80%) in primary loans from BOK, with the possibility of expanding the size up to KRW20 trillion(PERIOD) SPV’s bond purchasing program will be operated on a temporary basis for six months from July 14, 2020 until January 13, 2021, with the possibility of extension afterwards.(TARGETS) Investment grade corporate bonds and CP issued by nonfinancial companies with priorities given to low-rated companies (A~BBB ratings) and ‘fallen angels,’ BB-rated bonds downgraded from investment grades due to COVID-19-related factorsThe SPV is expected to help alleviate liquidity problems for many low-rated companies.* Please refer to the attached PDF for details.
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Jul 14, 2020
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Jul 07, 2020
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Jul 02, 2020
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Jun 23, 2020
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Jun 19, 2020
- FSC Launches Working Capital Support Program for Suppliers & Subcontractors in Key Industries
- The government announced its plans to launch Working Capital Support Program (WCSP) using the key industry stabilization fund at the 7th Meeting of the Central Economic Response Headquarters on June 19.BACKGROUNDThe government and banks have increased the availability of financial support for businesses in corporate loans and maturity extensions to help them tide over the COVID-19 crisis. Despite an increase in the availability of financial support, access to financial support remains difficult for many suppliers and subcontractors with unfavorable credit histories. As these suppliers and subcontractors make up the core of the key industries’ ecosystem, it is essential to provide them with additional financial support to maintain competitiveness of these industries. Against this backdrop, the government will introduce the Working Capital Support Program (WCSP) financed by the key industry stabilization fund to extend working capital loans to suppliers and subcontractors.WORKING CAPITAL SUPPORT PROGRAM(SIZE) Up to KRW5 trillion in working capital loans(SUPPORT TARGET) Companies (a) established before May 1, 2020, (b) with SME or middle market enterprise standing, (c) in business sectors eligible to receive support from the key industry stabilization fund, (d) deemed as an essential player within the industry in terms of maintaining the industry competitiveness, protecting jobs and maintaining supply chains, and (e) expected to face shortages in working capital due to the pandemic-induced economic slowdown.(LENDING INSTITUTIONS) Eligible suppliers and subcontractors are able to apply for loans at one of the program participating banks.(LOAN SPECIFICS) Working capital loans (WCLs) (a) cannot be used to pay off debt from existing loans, (b) will be issued up to the amount necessary for the operation of business, or up to KRW100 billion (2 percent of the total amount available for WCSP) or 50 percent of annual sales revenue, (c) have two-year maturity, and (d) have int
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Jun 18, 2020
- Vice Chairman Holds Meeting to Review Risks in Financial Sectors
- Vice Chairman Sohn Byungdoo held a meeting to review market conditions and risk factors in the financial industry on June 18 with experts from the public and private sectors.The following is a summary of Vice Chairman Sohn’s remarks.(END-OF-QUARTER-EFFECT IN JUNE) In March, the global spread of the COVID-19 infection, rising instability in financial markets and the end-of-quarter shortage in capital supply led to difficulties in the corporate bond and short-term money markets. In response, the government launched various financial support and liquidity injection measures, including a bond market stabilization fund and an SPV to purchase lower-rated corporate bonds and CP. As a result, the markets have begun to show signs of recovery with yield spreads growing at a slower rate.However, blue chip companies and non-blue chip companies face different conditions for issuing bonds. In June, a total of KRW68 trillion worth of corporate debt will be up for maturity (KRW12.2 trillion in corporate bonds and KRW55.5 trillion in CP and short-term debt). About 90 percent of them are high rated debt and will face not much obstacle in meeting debt obligation. The securities firms with margin call obligations related to equity-linked securities are maintaining foreign currency liquidity in case of global stock price fall. Thus, the liquidity problem is not a major concern.The government will temporarily ease the liquidity requirements of repo sellers to prevent a surge in cash demand at the end of June. The government will also provide support through policy banks’ corporate bond and CP purchase programs.(INVESTOR PROTECTION WITH DERIVATIVES PRODUCTS) With investors’ interest in derivatives products growing, the volumes of FX margin trading and CFD transaction by retail investors have increased significantly this year. For FX margin trading, the proportion of retail investors is very high at about 92 percent, despite the implementation of various measures, such as stricter ru
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Jun 17, 2020
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Jun 16, 2020
- Vice Chairman Underscores Support for Real Economy Sectors
- FSC Vice Chairman Sohn Byungdoo held the 8th financial risk assessment meeting on June 16 to assess the financial market conditions and check the implementation status of the COVID-19 financial support.The following is a summary of Vice Chairman’s remarks.(CURRENT SITUATION) Last week, the OECD released its forecasts for global economic growth based on the “single-hit” and “double-hit” scenarios of the spread of the infection. Compared to its announcement in March, the 2020 and 2021 forecasts were largely revised down. Meanwhile, the OECD indicated Korea as a “notable outlier” as the country’s effective quarantine measures and prompt financial assistance led to the slightest fall in the expected growth forecast.Despite signs of stability in the financial markets, the real economy sectors continue to struggle, with exports and employment showing continuous declines. This discrepancy exists because the sufficient level of liquidity in the markets cannot reach the businesses with unfavorable credit histories. As such, the government will work to reduce this discrepancy between the financial markets and the real economy sectors.(SUPPORT FOR SMES AND REAL ECONOMY SECTORS) From January to May, SME loans increased KRW48.6 trillion, and according to an FSS review, small-scale businesses and SMEs with lower credit backgrounds were also able to access loans.However, the government’s financial support is not being felt by many businesses. To address their needs, financial companies should utilize their know-hows in risk-pooling, capital raising and risk management to more readily assist the businesses struggling with liquidity problems.The government will continue to work on providing supports to the real economy sectors through a range of financial assistance programs including a lower-rated corporate bond and CP purchase program, a special loan guarantee program for auto industry, a corporate asset purchase program and an expansion of P-CBO issuance. The go
