Market Idle Funds Total 1,130 Trillion Won... Concerns Over Gap Between Financial Market and Real Economy

Financial Risk Response Team Meeting, 298.6 Billion Won Executed for 2nd Small Business Support

On the 16th, the Financial Services Commission held a Financial Risk Response Team meeting chaired by Vice Chairman Son Byung-du at the Korea Federation of Banks in Jung-gu, Seoul. Vice Chairman Son Byung-du of the Financial Services Commission is delivering the opening remarks.

[Asia Economy Reporter Jo Gang-wook] Concerns have been raised about a gap between the financial market and the real economy, as idle funds in the market exceed 1,100 trillion won. Financial authorities stated that this gap exists because market liquidity is not sufficiently flowing to companies with low credit ratings, and they have set a policy to reduce this disparity.

On the 16th, the Financial Services Commission held a Financial Risk Response Team meeting at the Seoul Banking Hall, chaired by Vice Chairman Son Byung-doo, and announced this.

Vice Chairman Son emphasized, "Although the domestic financial market is stable, there is a gap with the real economy," adding, "We will work to narrow the gap between the financial market and the real economy."

Domestic stock prices have recovered to the level at the beginning of the year, and the corporate bond and CP markets are being managed stably. However, the economic growth rate in the first quarter decreased (-1.3% quarter-on-quarter provisional figure), and exports and employment continue to decline, indicating a gap between the financial market and the real economy.

Vice Chairman Son explained, "This is because abundant market liquidity* remains only within existing high-quality companies and the financial market, and funds are not sufficiently flowing to companies with low credit ratings," adding, "If there is no policy effort to channel abundant market liquidity into productive sectors, it could lead to an expansion of the imbalance between finance and the real economy and unintended effects such as asset price bubbles."

In fact, according to the Bank of Korea and the Korea Financial Investment Association, idle funds in the market reached 1,130 trillion won in April this year, and investor deposits in the stock market recently amounted to 46.6 trillion won.

Accordingly, the need to strengthen support for the real economy, including small and medium-sized enterprises (SMEs), in the financial sector was emphasized. SME loans increased by about 48.6 trillion won from the beginning of this year to May, and according to the Financial Supervisory Service’s analysis, relatively low-credit-rated small business owners and SMEs also received relatively even support. However, there are criticisms that the perception of financial support for SMEs in the field remains low.

Chairman Son urged, "The financial sector should take more active support measures for companies struggling with liquidity shortages due to the impact of COVID-19."

Funding supply to small business owners is also continuing. Funds disbursed through the second small business support program, which resumed last month, reached 298.6 billion won. Additionally, through expanded funding support for small and medium-sized and mid-sized enterprises, 15.7 trillion won was provided, and 7.5 trillion won was supported to stabilize the corporate bond and short-term money markets. Looking at the overall loan and guarantee support performance in the financial sector, as of the 12th, 1,594,000 cases and 130.9 trillion won in funds have been supported.

This content was produced with the assistance of AI translation services.