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Resilient Korea Prepared for Crisis, Speakers Say
Threats to Korea’s fiscal and economic stability are exaggerated, and the banking system is well placed to withstand any losses caused by economic contraction, a senior regulator and bank executive told the Asian Investment Conference.
Dr. Chang-Yong Rhee, Vice-Chairman of the Korean Financial Services Commission (FSC) and Chairman of Securities and Futures Commission offered a robust defence of Korea’s readiness to deal with the global economic and financial storm during a special Korea session at the AIC today.
“Among Asian countries, I think countries can be differentiated according to their ability to offset the decline of external demand,” said Dr. Rhee, adding that Korea had a large consumer base. “On that front, I believe Korea can perform better than any other country in Asia.”
He said Korea had suffered only as a result of external forces, while its government, corporates, banks and households were in sound financial condition. In particular, he argued, Korea’s external liabilities were often exaggerated.
He took as an example Korea’s short term external debt. It has been well-publicized that Korean entities have some US$194 billion of obligations falling due this year. Dr. Rhee said US$70 billion of this amount were “non-obligatory” items such Korean won-denominated government liabilities, foreign exchange trading hedges and debts to the Korean branches of foreign banks.
He argued that Korea had sufficient access to liquidity, pointing out that the country’s “rollover ratio” – the proportion of loans successfully refinanced – had fallen to around 50% at the time of Lehman Brothers’ collapse, but was now around 100%.
Dr. Rhee made it clear that Korea’s government was taking action where necessary to protect the Korean economy. He pointed out that Korea’s government had committed to a stimulus package worth a total of KRW67 trillion, or the equivalent of 7.4% of Gross Domestic Product, and added that the government would continue to intervene where necessary in the currency markets, saying: “As long as the Korean won behaves independently from the general trend, the Korean government is ready to stabilize the FX market.”
Following Dr. Rhee, Mr. Young-Key Hwang, Chairman of KBFinancial Group, expressed his confidence in the resilience of the Korean banking sector. He discussed policy initiatives including the KRW20 trillion bank recapitalization fund and the government guarantee of Korean banks’ external liabilities.
He said that KB Financial’s own stress-testing work suggested that a worst-case scenario of credit losses of 2.5% would cost the country’s banking system KRW5-6 trillion. “In my view, KRW5 trillion of loss to the banking community is a number we can manage,” he said. He added that, given Korea’s economic contraction of 4%-6%, KB Financial should be able to keep credit costs within 1%. He said he expected the group would continue to be profitable.
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Day 2: Photo Album
