Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
-
Jun 21, 2017
- FSC Held Market Monitoring Meeting on Results of MSCI 2017 Market Classification Review
- FSC Vice Chairman Jeong Eun-bo held a meeting on June 21 with officials from relevant agencies to discuss the impact of the MSCI’s 2017 Market Classification Review and the government’s responses.INCLUSION OF CHINA A-SHARES INTO MSCI EMERGING MARKET INDEXIn its annual market review, MSCI decided to include China A-shares, 222 large-cap stocks of Chinese companies listed in either Shanghai or Shenzhen, into the MSCI Emerging Market (EM) Index.IMPACT ON KOREA’S FINANCIAL MARKETAs the inclusion of China A-shares increases China’s weighting in the MSCI Emerging Market Index, Korea’s weight in the same index is expected to decrease by 0.23 %p from its current 15.5%. Given the amount of funds tracking MSCI EM Index, which ranges between KRW 250 trillion (USD 230 billion) and KRW 1,900 trillion (USD 1.8 trillion), Korea may experience possible outflow of KRW 600 billion to KRW 4.3 trillion from the equity market.The FSC, however, sees MSCI’s decision will have a limited impact on the Korean stock market for the following reasons:▪ The change will be actually reflected in the MSCI EM Index in a year, from June 2018.▪ The amount of global funds investing in emerging markets continues to increase, recording a net inflow of USD 18.1 billion into emerging markets from April to May 2017.▪ Given that the Korean stock market attracted a net foreign capital inflow of KRW 9 trillionin the first five months this year alone, the amount of possible outflows (max. KRW 4.3 trillion) is not so significant.GOVERNMENT’S RESPONSESThe government will keep monitoring the impact of the MSCI’s decision to include China A-shares into its emerging market index on the Korean equity market. We will also continue our policy efforts to improve global competitiveness and attractiveness of our capital markets, and consultation with MSCI in regard with the inclusion of Korea on the list for potential reclassification to the MSCI Developed Market Index.* Please read the attached file
-
Jun 14, 2017
-
Mar 12, 2017
-
Dec 29, 2016
-
Dec 11, 2016
-
Nov 24, 2016
- Follow-ups on the Household Debt Management Measures Announced on Aug.25
- The FSC announced follow-up measures on household debt management as the measures announced on August 25, 2016 started to show a sign of policy effects, particularly in slowing down the pace of household debt growth in the non-banking sector and collective lending. Since the August 25 measures took effect, collective lending for apartment buyers and non-residential mortgages from the mutual banking sector fell significantly. (i) The outstanding balance of collective loans remains on the rise as loans for middle payments for previously-signed contract were taken out. However, the amount of newly approved loans for middle payments to purchase an apartment sharply fell in October.(ii) The growth pace of household loans in the mutual banking sector started to slow down in November since the loan-to-value ratios on non-residential mortgages in the sector were tightened on October 31. The follow-up measures are aimed to extend tighter screening standards for loan approvals, to collective mortgages and loans from mutual finance institutions, which have been under less strict standards than bank mortgages. Guidelines for loan screening will be applied to such collective loans and mutual finance loans as well, under the principle that household debt should be borrowed within the borrower’s repayment ability and repaid in installments from the beginning.- For pre-sale of new apartments after January 1, 2017, home buyers’ collective loans to pay the remainder of the money will be subject to tighter screening standards, as currently applied to banks’ mortgages. - Mutual finance institutions will establish and implement their guidelines for screening loan applications in the first quarter of 2017. - The debt service ratio(DSR) will be used as a reference from early December whenfinancial institutions screen loan applications and assess borrowers’ repayment ability. * Please read attachedf file for details.
-
Nov 22, 2016
- Measures for Improvement of Derivatives Markets
- The FSC announced a set of measures to make South Korea’s derivatives markets more advanced and sounder as this year marks the 20th anniversary of the establishment of derivatives markets in 1996. Key Points EXCHANGE-TRADED DERIVATIVES MARKETTo boost derivatives trading and enhance diversity of derivatives in the market, improvements will be made on both supply and demand sides. - Supply side: simplification of listing procedures, diversification of derivatives, adjustment of trading units for KOSPI200 futures and options - Demand side: flexible requirements for investors, introduction of the ‘omnibus account’ for foreign investors OVER-THE-COUNTER(OTC) DERIVATIVES MARKETRisk management system will be established with the introduction of global regulatory standards such as margin requirements for non-centrally cleared derivatives and electronic trading platforms. DERIVATIVE-LINKED SECURITIES MARKETThe FSC will strengthen risk management and investor protection, while pursuing more diversification of products to meet various investment needs. - For ELS DLS markets, stress tests will be conducted on regular basis to strengthen risk management of securities firms. To enhance transparency in fund management, assets of ELS issuance and management will be separately managed. - Investor protection will be strengthened in ELS DLS markets with the introduction of tougher “Know-your-Product Rule” and a “cooling-off period” for investors. - Development and listings of more derivatives-linked products will be promoted as alternatives to ELS products. Detailed Measures1. EXCHANGE-TRADED DERIVATIVES MARKET Supply Side(1) Simplification of listing procedures Listings of derivatives linked to new underlying assets, which currently requires the FSC’s approval, will be streamlined. Relevant rules will be revised to allow the KRX to decide on the listings of new derivative products, while the FSC will only approve the scope of the underlying assets. (2) Di
-
Nov 10, 2016
-
Nov 09, 2016
-
Nov 07, 2016
- FSC Holds Emergency Meeting on Financial Markets
- FSC Chairman Yim Jong-Yong convened an emergency meeting with top officials from the FSS and other relevant financial organizations to respond to recent uncertainties in financial markets at home and abroad. Followings are key messages from his opening remark: The Korean economy is now facing internal and external challenges with slump in exports; slow recovery in domestic consumption; and household and corporate debt risks. However, our economy has sound fiscal health and strong fundamentals to weather these challenges. The government maintains fiscal soundness with its debt-to-GDP ratio of 35.5% at the end of 2015, which is the 4th lowest among 31 OECD countries. South Korea has the world’s 7th largest foreign currency reserve. Its short-term external debt accounts for only 29% of the foreign currency reserve, as of the 2nd quarter of 2016, which is much lower than 74% at the end of 2008. The financial system is resilient enough in terms with capital adequacy and asset soundness of financial institutions. The government will stay alert to internal and external uncertainties and take bold and preemptive measures, if necessary, to prevent any of risk factors from spilling over into a wider financial system to threaten our economy. Starting from today, the FSC and the FSS go into an emergency operation mode with a 24-hour monitoring on financial markets, in a close cooperation with the Ministry of Strategy and Finance, and the Bank of Korea. If necessary, we will take market stabilizing measures in accordance with contingency plans in a timely manner. We will continue to respond to household and corporate debt risks in a preemptive manner. For household debt, the government will continue our effort to improve soundness of household debt by holding the principle of ‘debt should be borrowed within repayment ability and paid back in installments.’ We will also closely monitor and respond to rapid growth of household debt in non-banking sectors. For ong
-
Sep 09, 2016
-
Aug 26, 2016
-
Jun 24, 2016
- FSC Meeting on Financial Market Stability after UK's Decision to Leave the EU
- As it seems inevitable that the ‘Brexit’ decision would have short-term impact on financial market, financial authorities will respond in a swift and decisive manner to developments in financial markets. The government will monitor international and domestic financial market conditions around the clock while strengthening communication with global IBs and foreign media. The FSC/FSS will immediately form and operate a contingency response team led by the FSC Secretary General to strengthen monitoring and respond preemptively to possible volatility in financial markets. The government will also review its contingency plan to ensure that the detailed action plans are executed without any delay in case of abrupt financial market turmoil.In particular, the government will closely monitor domestic banks’ foreign currency liquidity conditions and make sure that they are well prepared to respond to market developments. The government views that the Korean economy is resilient enough to withstand possible impact of the Brexit decision on global financial market, given its strong economic fundamentals and financial soundness. * short-term external debt / total external debt: 43.1% (2009), 34.9% (2011), 26.4% (2013), 27.4%(2015) * short-term external debt / total foreign reserve: 52.0% (2009), 45.6% (2011), 32.3% (2013), 29.1% (2015) * current account surplus/ GDP: 3.7% (2009), 1.6% (2011), 6.2% (2013), 7.7% (2015) We ask investors not to overreact to temporary increase in financial market volatility and remain calm to future market developments from a mid-to long-term perspective with confidence in the Korean economy’s fundamentals. * Please read the attached file for details.
-
Jun 16, 2016
- Foreign Currency Liquidity Coverage Ratio (LCR) Will Apply to Banks from 2017
- The FSC will introduce foreign currency liquidity coverage ratio (LCR) rule starting 2017, which requires commercial banks to hold 60% of their foreign exchange debt in high-quality liquid assets (HQLA) to withstand a 30-day net cash outflow in systemic risks. The FSC/FSS adopted the foreign currency LCR in 2015 as a guideline to monitor banks’ foreign exchange liquidity risks, in accordance with the Basel III recommendation. Since then, commercial banks have been advised to maintain the foreign currency LCR of at least 40% in 2015 and 50% in 2016. From next year, banks will be required to comply with the foreign currency LCR rule. - The foreign currency LCR rule will apply to all banks with the exception of:(i) commercial banks with foreign exchange debt of less than 5 % of their total debt and USD500 million or less in foreign exchange debt; (ii) Export-Import Bank of Korea (KEXIM); and (iii) branches of foreign banks operating in Korea. - The foreign currency LCR for commercial banks will be set at 60% in 2017, increased gradually to 70% in 2018 and 80% in 2019. * Specialized banks – IBK, Nonghyup Bank and Suhyup Bank – will be applied the foreigncurrency LCR of 40% in 2017, 60% in 2018 and 80% in 2019. * KDB will be subject to less stringent LCR requirement, given its special role as a state lender. (40% in 2017, 50% in 2018, 60% in 2019) - Banks will be required to calculate their foreign currency LCR each business day and maintain a monthly average of the ratios above the minimum requirement. - The ratio may be lowered by FSC approval for a temporary period of time in a crisis in order to prevent banks from reducing their foreign exchange liquidity provision. - Overlapping regulations – e.g. seven-day and one-month maturity mismatch ratio requirements, three-month foreign exchange liquidity requirement – will be abolished or replaced by the foreign currency LCR. For the next six months, the FSC will gather opinions from the banking sector about the p
-
Jun 08, 2016
-
Apr 26, 2016
-
Mar 30, 2016
- FSC Announced CCyB Rate for Korea
- The Basel Committee on Banking Supervision set global regulatory standards of bank capital adequacy and liquidity, including Countercyclical Capital Buffer (CCyB), on December, 2010, in order to protect the banking sector against excessive aggregate credit growth that have often been associated with the build-up of systemic risks. Therefore, the Financial Services Commission established the domestic regulatory basis for CCyB on December 16, 2015, with the amendment to the Regulation on Supervision of Banking Business.The FSC announced its first CCyB rate for banks and bank holding companies in Korea, with effect from March 31, 2016. At present, the buffer rate is set at 0% considering the current sequence of credit-to-GDP gap, macroeconomic conditions, coordination with relevant fiscal and monetary policies, and the current CCyB implementation cases of the other countries.The FSC will continue to check whether the Korean banking sector is in an appropriate position in light of the current credit growth and system-wide risks, and will adjust the buffer rate if necessary. Furthermore, the FSC will conduct its quarterly review based on analyses and data provided by Financial Supervisory Service, in which the result will be shared with the policy-relevant institutions, such as Ministry of Strategy and Finance and the Bank of Korea.*Please read the attached file for details
-
Mar 09, 2016
-
Feb 10, 2016
- FSC Chairman Convenes an Emergency Meeting on Feb. 10
- FSC Chairman Yim Jong-yong convened an emergency meeting of high-ranking FSC officials on February 10 to make sure policy measures are in place amid growing market concerns over the recent developments in financial markets at home and abroad. RECENT MARKET DEVELOPMENTSGlobal stock markets have shown increased volatility with a rebound in oil prices, the prospect of deteriorating profitability for European banks and the strengthening of the yen, while major Asian markets including Korea were closed for the Lunar New Year holiday. On the domestic front, geopolitical risks including North Korea’s missile launch on February 7 could heighten anxiety over Korea’s financial market to be open on Thursday, February 11. POLICY RESPONSESThe missile launch is likely to have little impact on Korea’s financial market, given its calm response to North Korea’s previous provocations. However, the FSC will stay alert to any possibility of further escalation and closely monitor financial market conditions to prevent such geopolitical risks from combining with risk factors in global financial markets to weigh on our financial market. Particularly, we will look into policy implications of recent developments in major financial markets such as Europe, Japan, China and the U.S. to come up with policy responses, if needed. There is also a need for investors to respond calmly to recent market uncertainties with a longer-term view, rather than overreact out of anxiety. The government will thoroughly review and fine-tune contingency plans to ensure prompt and preemptive actions against any possible crisis. FINANCIAL AID TO COMPANIES OPERATING AT THE KICThe FSC will offer swift and sufficient financial aid to the companies operating at the Kaesong Industrial Complex (KIC) to minimize their possible losses from the shutdown of the KIC operation after North Korea’s missile launch. Those companies will be granted a roll-over for their maturing loans and cuts in interest rates and fees u
-
Feb 04, 2016
- FSC Convenes Meeting over Recent Developments in Global Financial Markets and Policy Response
- The FSC convened a meeting with the FSS and relevant research institutions to review policy implications of recent developments in global financial markets and discuss our policy responses. There are growing uncertainties in the global economy this year with a slowing Chinese economy and falling oil prices. The IMF cut its outlook for global economic growth in 2016 from 3.6% to 3.4%. As global economic conditions weighed on our economy, Korea’s exports dropped 18.5% in January compared with the previous month, raising concerns about the country’s economic slowdown. In response to such worries, the Korean government announced yesterday a stimulus plan including an injection of KRW 21trillion in the first quarter of this year through fiscal spending and policy financing in a bid to boost domestic demands and create more jobs. Global financial markets are also facing increasing volatility with Fed’s rate hike, China’s financial market turmoil and declining oil prices. The Fed’s rate increase last December has led to contraction in global liquidity, while accelerating capital outflows from emerging economies to advanced economies. Monetary policies among major central banks have become divergent as the BOJ cut its interest rates to minus 0.1 per cent last week, joining in the ECB’s move to negative interest rates. The ECB also hinted a possibility of further quantitative easing. Compared with major economies, Korea’s financial market stayed stable; however, volatility has recently increased to some extent in the local stock and currency markets. With increased volatility in global financial markets, foreigners’ selling of Korean stocks has continued from last June until early this year. Fluctuations in the currency market have also increased with the won-dollar exchange rate surging to 1,219.3 won yesterday, a record high since July 2010. There is no quick fix for current global market risks, which are likely to persist for a considerable period of this