SEOUL, March 24 South Korea's financial system
faces a little more risk in the wake of the U.S. Federal
Reserve's interest rate hikes, the Bank of Korea said on Friday,
but the system's ability to withstand external shocks was still
in "fair condition".
Despite external and internal uncertainties, foreign flows
had remained steady, the Bank of Korea said, but should the Fed
start raising rates more quickly than expected capital flight
Given South Korea's sturdy financial buffers such as
massive foreign currency reserves and a big current account
surplus, as of now that possibility looked limited, the BOK said
in a statement issued after a meeting to discuss financial
High household debt remained a concern but was not yet at
the point where it could turn into a major crisis, the BOK
noted, although debtors in the lowest income bracket were
vulnerable to higher interest rates.
Those higher interest rates did not pose immediate risks to
private entrepreneurs, except for retailers and restaurateurs.
"Retail stores and restaurants are usually established to
maintain livelihoods and we've seen many of these get started up
and go bankrupt just as easily. That's why we believe the owners
of these businesses may face hardship paying their debts," Huh
Jin-ho, a deputy governor at the Bank of Korea, told a media
The ability of big corporations to repay debt would not be
undermined even if market interest rates jumped the maximum 150
basis points set in a scenario used to test 24,951 companies
that had been subject to external audits, the BOK said.
The Bank of Korea said these companies' ratio of operating
profit to interest had improved steadily since 2014, but that
was largely due to low investment amid economic sluggishness.
The Bank of Korea said businesses in the troubled
steelmaking and shipbuilding industries were at greater risk of
hardship from higher borrowing rates than other industries.
(Reporting by Christine Kim; Editing by Eric Meijer)