-
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
-
Feb 02, 2016
-
Feb 01, 2016
-
Jan 21, 2016
- HSCEI-Linked ELS Market Conditions and Policy Response
- The FSC held a press briefing on HSCEI-linked ELS market conditions and its policy response as the benchmark index sharply fell to 8,015.44 on January 20, raising concerns over increasing volatility in the market. The outstanding balance of HSCEI-linked derivative products decreased from KRW 37.1trillion in September 2015 to KRW 37trillion as of January 19, 2016. ▪ Outstanding balance of HSCEI-linked products: KRW 35.8trillion (June 2015) → KRW 37.1trillion(Sept. 2015) → KRW 37.0trillion (Jan.19, 2016)Recent sharp falls in the index triggered “knock-in” for some HSCEI-linked ELS products; however, that does not necessarily mean investors’ losses. Most ELS products are structured to pay investors previously-agreed profits if the index recovered to certain levels even after the index fell below knock-in levels. Out of the outstanding HSCEI-linked ELS, 96.7% will reach maturity after 2018; if the HSCEI recovered in the meantime, therefore, it would not incur losses to investors. The FSC sees that further falls in the index will be unlikely to threaten soundness of brokerage firms which raised capital through HSCEI-linked ELS issuance. The average NCR of domestic brokerage companies stands at 486.7% at the end of September 2015, up 19.5 %P from 467.2% in June 2015 when Chinese stock market turmoil had not yet occurred. In addition, for capital raised through HSCEI-linked ELS, brokerage companies are hedging against volatility of the underlying index. As volatility in the HSCEI increases, the FSC will strengthen monitoring and supervision on the ELS market. To make sure brokerage firms manage their capital raised through ELS issuance in a sound and transparent manner, the Regulation on Financial Investment Business will be amended to separately handle such capital from other proprietary assets in accounting. We will keep monitoring whether brokerage firms properly manage hedging assets. We will examine sales practice of ELS products, particularly checking whe
-
Jan 19, 2016
-
Jan 14, 2016
-
Jan 13, 2016
-
Jan 07, 2016
-
Jan 06, 2016
-
Jan 05, 2016
-
Dec 30, 2015
-
Dec 17, 2015
-
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
-
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
-
Dec 09, 2015
-
Nov 29, 2015
-
Nov 27, 2015
-
Nov 02, 2015
-
Nov 01, 2015
-
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
