South Korean banks and other financial institutions should ramp up efforts to manage risks of home-backed loans this year to brace for a potential burst of a housing bubble, the nation's top financial regulator warned Thursday.
The warning comes as concerns are mounting over a sudden bursting of a housing price bubble that could wreak havoc on households due to large amounts of home-backed loans taken out to fund their home purchases.
"Financial institutions should prioritize on managing risks this year to prepare for a potential bubble burst," Yoon Jeung-hyun, head of the Financial Supervisory Service, told a meeting with the heads of local banks and non-bank financial companies.
"It is vital to focus on preemptive risk management on home-backed loans, which have surged in the last few years," he said.
In case of a housing bubble burst like in Japan in the 1990s and the United Sates in the 1970s and 1980s, no financial firms will be free from its impact, Yoon added.
In a desperate effort to curb housing prices, the government has implemented a series of tough moves, including stricter rules for home-backed loans.
Economy and Finance Minister Kwon Oh-kyu joined the call for better risk management, saying that the government will also step up its monitoring of financial institutions' risk management practices.
"The government will put its financial policy priority on risk management practices by financial institutions," Kwon told the same meeting. "It will keep close tabs on sectors that could turn sour."
Lee Seong-tae, governor of the Bank of Korea, echoed Kwon and Yoon's remarks.
"Amid lingering uncertainties such as the exchange rate, oil prices, the U.S. economy and geopolitical risks, financial institutions must continue to improve their risk management systems to enhance competitiveness," Lee said.
The central bank will manage the interest rate in a flexible way to sustain economic growth while keeping consumer prices stable, he added.
Seoul, Jan. 4 (Yonhap News)
S. Korean lenders urged to tighten risk management |
