Yoon Seok-heon: "Exposed to Interest Rate Rise Risks... Need to Promote Various Fixed-Rate Loan Products"

Urging Thorough Examination and Preparedness for Risk Factors Due to Interest Rate Increases

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Yoon Seok-heon, Governor of the Financial Supervisory Service (FSS), stated that it is necessary to encourage the launch of various loan products that can mitigate the risks of rising interest rates amid growing market concerns about the upward trend in interest rates.

According to the FSS on the 23rd, Governor Yoon urged at an executive meeting to closely examine and prepare for risk factors, noting that although there is uncertainty about whether the interest rate increase will continue, its impact could be significant.

As of the 19th, the 10-year Korean government bond yield was 2.10%, up from 1.17% at the end of 2020 and 1.77% at the end of January 2021. The 10-year U.S. Treasury yield has also been rising continuously, from 0.91% at the end of 2020 to 1.07% at the end of January 2021, and 1.72% as of the 19th of this month.

Governor Yoon pointed out, "Although the proportion of fixed-rate loans has steadily increased, there are still many borrowers exposed to interest rate rise risks due to a considerable amount of variable-rate loans," and added, "it is necessary to encourage the launch of various loan products so that borrowers can easily utilize fixed-rate loans or interest rate cap loans that can mitigate the risk of rising interest rates if they wish."

He also expressed concerns from the perspective of financial companies' soundness, noting that rising interest rates could lead to valuation losses on securities and loan defaults due to increased interest burdens on borrowers.

Governor Yoon said, "For financial companies with a high proportion of short-term funding and long-term operations, profits may shrink and liquidity risks may increase," urging, "Financial companies should thoroughly analyze, evaluate, and manage interest rate rise risks, and supervisors should ensure that they maintain sufficient loss absorption capacity through provisions and other measures."

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