South Korea’s financial market is stable but faces more problems (BOK)

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SEOUL, June 24 (Yonhap) — South Korea’s financial market will continue to stabilize, but the economic fallout from the novel coronavirus pandemic may become more severe and real in the future, the Bank said Wednesday. of Korea (BOK).

“While economic activities will gradually resume from the second half of the year, the financial market will continue to be more stabilized, but the negative impact of the COVID-19 pandemic on the financial system may return to the surface,” the central bank said in a biennial report on financial stability submitted to the National Assembly.

The BOK noted that conditions could also worsen if the pandemic becomes more severe with a second wave.

Currently, the BOK said the country’s financial system is in a better position than it was two months earlier, shortly after the novel coronavirus outbreak peaked at around 900 new cases per day in late February. and early March.

The country’s financial stability index climbed to 22.3 in April, breaching the lower limit of a crisis warning, but has since fallen to 18.

At the end of March, South Korean household debt outstanding reached 1,611.3 trillion won ($1.33 trillion), up 4.6% from a year earlier, marking a slight acceleration compared to the previous quarter.

The ability of local households to repay their debt has deteriorated due to a drop in income, apparently caused by the novel coronavirus outbreak.

At the end of March, the household debt-to-disposable income ratio stood at 163.1 percent, up 4.5 percent from the same period last year, according to the BOK.

“Uncertainties in the financial market have generally subsided with active market stabilization efforts by the government and the Bank of Korea, but financial instability may arise again, depending on the evolution of the COVID pandemic. -19,” he said.

“If the country’s employment conditions worsen to the level of a financial crisis due to the COVID-19 pandemic, its delinquency rate is expected to rise sharply as the debt repayment capacity of households that earn an income will decrease,” he added.

Businesses can also face serious problems if conditions worsen.

In a baseline scenario where the pandemic no longer causes serious problems at home or abroad, the operating profit-to-sales ratio of local businesses is expected to fall to 2.2% this year, from 4.8% in 2019.

In a severe scenario, their profit rate will drop further to 1.6%, which could lead to an increased shortage of liquidity.

“Since the shortage of business liquidity may be a temporary event caused by the shock of the COVID-19 pandemic, instead of a fundamental problem, it may be necessary to preemptively prevent the possibility of mass insolvencies. with timely financial support,” the BOK said. mentioned.

The government has already provided more than 200 trillion won to local businesses and households to help them deal with the crisis, and it is pushing for a third supplementary budget worth 35.3 trillion won, the most important of its kind in the country’s history.

Without additional government support, the local economy is expected to contract by 0.2 percent year-on-year in 2020, the BOK said earlier.

In a worst-case scenario, however, South Korea’s economy could contract as much as 1.8% year on year, he said, noting that the worst-case scenario would involve a second peak of the novel coronavirus pandemic. coronavirus.

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