Seoul: The South Korean central bank warned Thursday of the possibility of increased volatility in the financial market and its potential impact on the country's financial stability amid weak economic growth and high uncertainties at home and abroad. The Bank of Korea (BOK) made this point in its latest financial stability report, where it also called for close monitoring of real estate market risks and household borrowing, given the recent rise in housing prices in Seoul and the surrounding region.
According to Yonhap News Agency, the BOK stated that the South Korean financial system has generally stabilized, supported by the resilience of financial institutions and external payment capabilities. However, amid high uncertainties and low economic growth, there is a chance that the volatility of financial market price variables could increase in the event of domestic or external shocks. The BOK forecasts South Korea's economy to expand by 1.5 percent in 2025, slowing from last year's 2 percent growth, mainly due to declining exports and weak domestic demand.
The BOK report highlighted that downward pressure on economic growth has increased due to domestic political conditions and changes in the economic policies of major countries, which could delay the improvement of the financial soundness of borrowers and financial institutions. The bank also pointed to recent instability in the real estate market and its potential impact on household debts as major risk factors.
Outstanding property-related debts stood at 2,681.6 trillion won (US$1.83 trillion) as of end-2024, up 4.8 percent from a year earlier, matching 105.2 percent of the country's nominal gross domestic product (GDP). As of the end of February, banks' outstanding household loans rose 3.3 trillion won from the previous month, reaching 1,143.7 trillion won, according to BOK data.
Lee Jong-ryeol, a BOK deputy governor, stated at a press briefing that lower interest rates could affect household debts and assured that the market is being closely monitored, with countermeasures ready to be implemented when necessary. In February, housing prices in Seoul logged the steepest growth in three months after the Seoul city government lifted part of the land transaction permission system in some areas of Seoul's Gangnam, Seocho, and Songpa. In response to the surge in home prices, the government reinstated the regulatory system last week.