Lee Chang-yong, the Governor of the Bank of Korea, emphasized the importance of managing the total amount of household debt during a meeting with heads of commercial banks on the 23rd. It appears that he urged the active management role of commercial banks as the increase in household loans rises with distinct signs of overheating in the housing market, particularly in Seoul and the metropolitan area.
After the regular board meeting of the Korea Federation of Banks held at the Korea Federation of Banks headquarters in Myeongdong, Seoul, Governor Lee had dinner with 18 major commercial bank heads, including Cho Yong-byoung, the chairman of the Korea Federation of Banks. He noted, "It is a crucial time for stable household debt management within the banking sector to prevent risks related to the housing market and household loans from expanding again under the interest rate reduction trend."
Chairman Cho also noted, "In a situation where domestic and external risks are overlapping and economic uncertainty persists, the banking sector is also responding with a heavy sense of responsibility, together with the Bank of Korea, to ensure economic stability and the well-being of the people," and he promised, "We will actively cooperate with the Bank of Korea's policies for managing household debt and stabilizing financial markets, and will fulfill our role as the lifeblood of the economy."
Governor Lee's remarks are considered to be in light of the recent increase in household loans. According to the Bank of Korea, as of the 19th, the outstanding balance of household loans from the five major commercial banks was 752 trillion won, which represents an increase of 3.99 trillion won compared to the end of May (748.81 trillion won). On average, it increased by 210.2 billion won daily. This daily increase in the loan balance is the highest in 10 months since last August (310.5 billion won).
Financial authorities are also viewing this situation seriously. They maintain the position that it is necessary to strengthen macro-prudential regulations, including the debt service ratio (DSR), to control the flow of loans. The Bank of Korea is set to hold a Monetary Policy Committee meeting on the 10th of next month, and if the recent increase in housing prices in the metropolitan area and household loans does not stabilize, there are expectations that the benchmark interest rate may likely be held steady to consider financial stability.
A broad discussion regarding various financial issues also took place during the dinner. In particular, it is reported that there was a mutual understanding of the necessity for collaboration with the banking sector regarding the "Project Han River," a pilot test for the Central Bank Digital Currency (CBDC) being pushed by the Bank of Korea. Project Han River is a digital currency experiment being jointly promoted by seven banks including KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, IBK, and BNK Busan, which is slated to complete its first phase of testing by the end of this month and enter the second phase by year-end.
Additionally, it is reported that there was also consensus on the need to strengthen communication channels between the two sides to ensure that the banking sector's input is adequately reflected in the Digital Assets Basic Act, which contains plans for the legislation of stablecoin issuance models that the banking sector is pursuing through a consortium.
It is also reported that discussions included revitalizing the risk-free benchmark interest rate (KOFR) market, the introduction of the International Financial Standard (ISO 20022), and improvements to the foreign exchange market structure.