Korean financial authorities prioritize risk management for 2024

Korea’s financial authorities placed risk management as a priority for 2024 in their New Year’s messages amid growing liquidity concerns following a recent debt restructuring by Taeyoung E&C, Korea’s 16th-largest construction company.

From left: Financial Supervisory Service Gov. Lee Bok-hyun, Bank of Korea Gov. Rhee Chang-yong, Finance Minister Choi Sang-mok, Financial Services Commission Chairman Kim Joo-hyun, and Senior Presidential Secretary for Economic Affairs Park Chun-sup stand during a press conference on macro economy held on Dec. 29 in central Seoul. [YONHAP]

Korea’s financial authorities placed risk management as a priority for 2024 in their New Year’s messages amid growing liquidity concerns following a recent debt restructuring by Taeyoung Engineering & Construction (E&C), Korea’s 16th-largest construction company.

Bank of Korea Gov. Rhee Chang-yong on Monday said they “need to thoroughly prepare ourselves for possible financial instability as monetary austerity continues,” in his New Year’s message sent out to the central bank’s employees.

“In major developed economics, commercial real estate loans are showing signs of deterioration, and some risk signals have been detected also in Korea, stemming from real estate project financings [PFs],” Rhee said, stressing the “need to be extra careful to prevent the debt risks from spreading onto the weak links of Korea’s economy.”

PF loans are loans borrowed with a development project's future profits as a form of collateral.

The governor’s latest comment came as Taeyoung E&C’s recent filing for a debt workout continues to send ripples across the financing market.

The mid-sized builder applied for creditor-led restructuring on Dec. 28. The company faces a liquidity shortage, having taken out a high volume of real estate PF loans amid a weak property market.

Rhee predicted the gradual decrease in the inflation rate will continue this year with the global monetary tightening cycle coming to an end, while also noting that geopolitical risks, the fragmentation of global economies and upcoming major elections will add uncertainties to the market situation.

“It is important to successfully finish the long-running fight against inflation,” Rhee said.

Though the decline in inflation may take longer than expected, “we should and will attain stability in commodity prices,” the governor emphasized.

Financial Services Commission (FSC) chairman Kim Joo-hyun, issued a New Year’s message on Dec. 29, promising to “proactively address internal market instability and risks in household economies, while taking a systemic approach toward issues in the financial industry and macroeconomics with a long-term perspective.”

“Although interest rates are expected to fall this year, the timing and pace of such rate cuts remain undecided, and therefore we cannot afford to neglect normalization and stabilization of PF loans in the real estate market, non-banking financial institutions and household debts,” Kim said.

The FSC will implement regulatory measures and ramp up support to improve financial soundness in the real estate sector in order to facilitate a soft landing from the current risks in PF loans, the chairman stressed.

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun pledged to “make financial stabilization a top priority and systemically overhaul the financial system.”

The FSS will “revamp the contingency plan to prevent the transmission and spread of financial risks and do its best for systemic risk prevention while bolstering risk response capacity by enhancing the loss-absorbing capacity of financial firms,” Lee said.

The governor also addressed the issue of naked short sales, saying that the financial regulator will tighten regulations on illegal activities in the financial market.

Meanwhile, chiefs of Korea’s major conglomerates sent out their New Year greetings to employees on Monday, bracing for another challenging year ahead.

“The business environment is likely to remain challenging in the new year,” SK Inc. Chairman Chey Tae-won said in a message to SK employees.

Chey noted that “many nations across the globe, whether big or small, are struggling to deal with various challenges regarding energy, climate crisis, digital technology, disease and poverty,” adding that “if we can provide them with a solution, we will be able to win trust and create a virtuous cycle of win-win relations that lead to sustainable growth.”

Doosan Group Chairman Park Jeong-won also expected the business uncertainties to worsen this year, and called for “bold, pre-emptive” investments for the future.

Park cited securing new opportunities in the nuclear sector and expanding its gas turbine business overseas as some of this year’s major goals.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]