General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
February 13, 2018

IMF issued staff report and selected issues report in the context of the 2017 Article IV consultation with Korea. Directors highlighted that the financial system is sound and macro-prudential policies are effectively addressing financial stability challenges, including from high household debt. They encouraged the authorities to remain vigilant to emerging risks, especially from non-bank financial institutions. Directors considered that the regulatory burden for firms should be eased, especially in the service sector.

The staff report highlighted that the regulatory reforms are strengthening the resilience of the financial system. Capital ratios of banks are well above the regulatory minimum, at 14.8% in 2016. A Basel III capital surcharge on five domestic systemically important banks and a countercyclical capital buffer (CCyB) were put in place in 2016 and will be phased-in gradually. The surcharge will rise to 1% in 2019. The CCyB has not been activated yet. Its maximum size is of 2.5% of risk-weighted assets; however, it is likely to remain low, owing to the slowdown in credit growth. Banking system liquidity is improving, with the loan-to-deposit ratio at 119%. Bank asset quality is good, with a non-performing loan (NPL) ratio of 1.25%. Indicators of financial soundness for non-bank financial institutions (NBFIs) are also strong, although their NPL ratios tend to be higher than those of banks, reflecting the generally lower quality of borrowers. Part of the increase in capital ratios in 2016 was due to lower risk-weights. The supervisory authorities are tightening and harmonizing regulation across different types of financial institutions, which should help contain further migration of credit risk from banks to NBFIs. Rising interest rates could pose a risk to asset quality. Low interest rates have contributed to low NPLs by making repayment easier; however, asset quality could deteriorate with a large hike in interest rates. Stress tests of interest rate increases are essential to assess asset quality and credit risk.

The staff report reveals that the supervisory authorities conduct a range of bottom-up and top-down stress tests for banks at an annual or quarterly frequency. Top-down stress testing, involving common macroeconomic risk scenarios for the financial system, will be extended to NBFIs next year. Bottom-up stress tests are already being applied to individual NBFIs and generally show a high level of resilience. Measures targeting external financing risks of banks have been adjusted as the macro-prudential policy framework was overhauled. In January 2017, substantial reforms of the macro-prudential policy framework targeting external risks were implemented. They included a new currency-differentiated liquidity coverage ratio (FX-LCR) and the abolishing of five existing measures that overlapped with the FX-LCR. A standard Basel III net stable funding ratio (NSFR) is being implemented; making it currency differentiated was considered unnecessary, given that currency mismatch risks are low.

The selected issues report discusses topics related to enhancing the monetary policy framework in Korea; strategy for Korea's fiscal policy in a low-growth environment; Korea's integration into global value chains and external balance; macro-prudential policy and high-household debt; labor market duality in Korea; new minimum wage policy in Korea; and recent trends in financial performance and investment of largest companies in Korea.

 

Related Links

Keywords: Asia Pacific, Korea, Banking, NBFI, Basel III, NPL, Macro-Prudential Policy, Stress Testing, IMF

Related Articles
News

EBA Publishes Reports Monitoring the Implementation of Basel III in EU

EBA published two reports measuring the impact of implementing the final Basel III reforms and monitoring the implementation of liquidity measures in EU.

March 20, 2019 WebPage Regulatory News
News

BCBS Publishes Results of Survey on Proportionality in Bank Regulation

BCBS published a report presenting the results of a survey conducted on proportionality practices in bank regulation and supervision.

March 19, 2019 WebPage Regulatory News
News

US Agencies Adopt Interim Rule to Facilitate Transfers of Legacy Swaps

US Agencies (FCA, FDIC, FED, FHFA, and OCC) are adopting and inviting comments on an interim final rule.

March 19, 2019 WebPage Regulatory News
News

EIOPA Requests Data on LTG Measures from Insurers Under Solvency II

EIOPA has requested the European Economic Area insurance undertakings, which are subject to Solvency II, to provide information on the long-term guarantee (LTG) measures.

March 18, 2019 WebPage Regulatory News
News

PRA Proposes Reporting Amendments to Pillar 2 Liquidity Framework

PRA proposed (CP6/19) regulatory reporting amendments and clarifications to the Pillar 2 liquidity framework for banks in UK.

March 18, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for March 2019

EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.

March 15, 2019 WebPage Regulatory News
News

OCC Updates Recovery Planning Booklet of the Comptroller's Handbook

OCC updated the Recovery Planning booklet of the Comptroller’s Handbook.

March 15, 2019 WebPage Regulatory News
News

CFTC and MAS Announce Mutual Recognition of Derivatives Trading Venues

CFTC and MAS announced the mutual recognition of certain derivatives trading venues in the U.S. and Singapore.

March 15, 2019 WebPage Regulatory News
News

EBA Publishes Report on Convergence of Supervisory Practices Across EU

EBA published annual report on the convergence of supervisory practices in EU.

March 14, 2019 WebPage Regulatory News
News

CPMI-IOSCO Publish Update to Level 1 Assessment of PFMI Implementation

CPMI and IOSCO jointly updated the Level 1 Assessment Online Tracker on monitoring of the implementation of the Principles for financial market infrastructures (PFMI).

March 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2763