As volatility in the financial market has expanded due to rising domestic and global interest rates, financial authorities have decided to conduct a pre-check of the issuance scale and maturity structure of bank bonds and credit card company bonds for the fourth quarter (October–December), and to closely examine asset soundness and liquidity response capacity. Should volatility in the bond market expand excessively, they will move to make advance preparations, including swiftly expanding the support scale of the Market Stabilization Program.
Financial Services Commission Chairman Lee Eok-woon held a financial market situation check meeting on the 1st with experts from the Financial Services Commission, the Ministry of Economy and Finance, the Financial Supervisory Service, the Korea Institute for Financial Industry, and credit rating agencies to discuss such response measures.
The meeting was convened to review the impact of rising domestic and global interest rates on the market, following consecutive base rate hikes by central banks in major countries, including South Korea, and to identify and address potential risk factors that could expand financial market volatility, such as changes in the AI (artificial intelligence) semiconductor industry outlook, global capital flows, and geopolitical risks.
In the bond market, government bond yields rose 1.058 percentage points year-to-date, from 2.953% at the end of last year to 4.011% on the 30th of last month, while corporate bond spreads have also shown a trend of widening by 0.169 percentage points year-to-date. Since the Middle East war in March, the government has actively purchased 1.21 trillion won worth of corporate bonds and commercial paper (CP) through the Market Stabilization Program. Mortgage loans recorded an annual rate of 4.66% (weighted average interest rate on new disbursements) as of last August, marking a fourth consecutive month of increases and reaching the highest level since the Legoland incident in 2022.
Lee (Chairman) stated, "The global monetary policy stance is shifting toward tightening, and uncertainties such as the Middle East situation are overlapping," diagnosing that "the current moment is a turning point where the flow of the financial environment is changing." He instructed to "maintain an active execution stance for the Market Stabilization Program aimed at stabilizing the bond and funding markets, given the continued rise in market interest rates, while thoroughly preparing to swiftly expand the support scale should volatility in the bond market expand excessively."
In particular, he emphasized that authorities should "conduct a pre-check of the issuance scale and maturity structure of bank bonds, credit card company bonds, etc., for the fourth quarter to prevent supply-demand burdens in the bond market due to concentrated issuance during specific periods, and meticulously examine the asset soundness, liquidity response capacity, and funding structure of the financial sector during the period of rising interest rates."
The rise in market interest rates following base rate hikes will spread negative impacts with a time lag, starting from vulnerable borrowers with declining repayment capacity. Therefore, relevant institutional investors will jointly and without fail promote support measures for vulnerable borrowers.
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