The Bank of Korea asked domestic banks to boost their capability to cope with possible shocks.
“Banks must reinforce their recapitalization drives in preparation for unforeseen domestic and external shocks,” the central bank said in a report to the National Assembly today.
Efforts by domestic banks to boost their ability to handle unexpected events by retaining profits are seen as having fallen short because they’ve paid relatively high dividends compared with other domestic companies and their peers in major emerging market countries, the BOK said.
Foreign currency liquidity conditions for Korean banks could deteriorate if European-based financial institutions proceed with large-scale deleveraging, the BOK said.
The BOK called for policy actions to address the household debt issue because some borrowers, especially low-income earners, may fail to repay their debt in the event of a shock such as a decline in house prices.
The central bank reiterated its commitment to conduct monetary policy to “firmly anchor” price stability in the medium term amid continuing sound economic growth.
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