Bank of Korea Warns: "Sparks of Risk Are Reviving"

[Anchor]

Joining us for Thursday's 'Friendly Economy' is reporter Han Ji-yeon. Reporter Han, I hear the Bank of Korea is viewing household debt quite seriously?

[Reporter]

Yes, the Bank of Korea (BOK) has warned that the sparks of risk within the financial system are reviving as home prices rise again and debt-fueled investing grows.

The Financial Stability Report released by the BOK this time is a report that assesses the overall health of South Korea's financial system twice a year.

For now, the central bank assessed that financial institutions themselves are robust.

It evaluated that bank soundness, foreign exchange reserves, and external payment capabilities are also in good shape.

The problem is household debt.

As home prices rise again, household debt is expanding noticeably.

The monthly average increase in household debt was 2.7 trillion won in the fourth quarter of last year and around 3 trillion won in the first quarter of this year, but it surged to 9.3 trillion won in May.

Debt-fueled investing in the stock market has also intensified.

The scale of stock investments using debt, such as margin loans and leveraged ETFs, exceeded 39 trillion won as of May.

The BOK warned that if this trend continues, financial imbalances—where debt grows faster than the economy can handle—could widen.

In fact, the medium-to-long-term Financial Vulnerability Index (FVI) also reached its highest level in three years and three months.

[Anchor]

Market interest rates have already risen significantly, and it seems the base interest rate might be raised soon. Those with a lot of debt must be facing a growing burden.

[Reporter]

The BOK warned that while cooling down home prices and debt-fueled investing is important, the risk of default among vulnerable borrowers and elderly self-employed individuals could also rise.

In this report, the BOK reaffirmed its stance that it needs to raise the base interest rate at an appropriate time.

Of course, raising interest rates can help curb the growth of household debt and cool down the overheated asset market.

However, the problem lies with vulnerable borrowers who have borrowed from multiple sources and have low income or credit levels.

Their share stood at 6.7% at the end of the first quarter of this year, higher than last year.

The BOK paid particular attention to elderly self-employed individuals aged 60 and older.

The number of elderly self-employed individuals grew from 1.84 million in 2015 to around 2.7 million last year.

The financial debt they hold increased more than fourfold, from 96 trillion won to 406 trillion won.

While the number of people increased by about 1.5 times, their debt grew more than fourfold.

The BOK expressed concern that for elderly self-employed individuals, their income base is weak while their debt burden is growing, and they also have a high proportion of non-bank loans. Consequently, defaults could expand rapidly if interest rates rise or the economy slows down.

Ultimately, the BOK believes that while it must reduce the financial imbalances fueled by rising home prices and debt-driven investing, it is crucial to manage the process so that vulnerable borrowers and the elderly self-employed do not collapse first.

[Anchor]

The last topic is sugar. Are we saying there is a sugar supply shock coming because of India?

[Reporter]

Yes, India, the world's second-largest exporter, has halted sugar exports.

As sugar prices rise, there are concerns that this could stimulate food inflation.

The Indian government has banned sugar exports until September 30.

The primary reason is a decline in sugarcane production.

This year, India's rainfall is expected to be the lowest in 11 years due to the impact of El Niño, which warms Pacific waters near the equator.

Rainfall in June was also more than 40% below average, prompting farmers to delay sowing.

On top of that, demand for ethanol has increased.

As the Indian government expands the use of ethanol instead of gasoline, harvested sugarcane is being routed to ethanol production rather than sugar mills.

India has exported an annual average of 6.8 million tons of sugar over the past five seasons.

This accounts for about 10% of global sugar exports.

However, this year, it has halted exports after shipping only about 800,000 tons.

The local industry believes India could effectively exit the sugar export market for at least three years.

If this scenario becomes reality, competition among importing countries to secure alternative supplies will inevitably intensify.

Consequently, outlooks suggest that the rise in international sugar prices could affect the prices of processed foods such as cookies, beverages, and ice cream.
※ Please note: This article was translated by AI and may contain errors.