"Korea's Financial Imbalance Level at One-Quarter of the Financial Crisis Period"

[Asia Economy Reporter Kim Eunbyeol] It has been revealed that the level of financial imbalance in South Korea exceeds the 20-year long-term average. However, it has been calculated that the financial imbalance is reduced to one-quarter of the level during the global financial crisis and half of the level during the 2003 credit card crisis.

According to the Bank of Korea's 'BOK Issue Note - Evaluation of Financial Imbalance Levels Considering Financial-Real Linkages' on the 28th, the financial imbalance level in South Korea in the second quarter of last year was 25, exceeding the long-term average (0).

The Bank of Korea standardized the financial imbalance level during the financial crisis as 100, and set the long-term average financial imbalance level from the first quarter of 2001 to the second quarter of 2019 to have a value of 0 to calculate this figure. The financial imbalance level in 2003 was recorded at 55.

A Bank of Korea official stated, "The Financial Stability Index has mostly remained in a stable phase since 2013, and there are no signs of short-term financial instability," but added, "The vulnerability of the financial system has been gradually increasing recently." The Financial Stability Index began to exceed the long-term average starting from the third quarter of 2017.

Furthermore, the recent accumulation of financial imbalance appears to be mainly due to household credit.

As of the second quarter of last year, the contribution of household credit to financial imbalance was 55.7%, still higher than the contribution of corporate credit to financial imbalance.

The Bank of Korea considered the impact of household and corporate credit on economic growth to evaluate the level of financial imbalance. Previously, credit gaps and financial cycles were mainly used for evaluation.

The Bank of Korea stated, "This measurement is an indicator to identify the medium- to long-term vulnerability of the financial system," and added, "It is expected to strengthen financial stability analysis when used together with existing financial imbalance evaluation indicators."

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