"Continued Concerns Over PF-Related Financial Sector Soundness... Review of Improvement Measures"

Kim So-young, Vice Chairman of the Financial Services Commission, stated on the 21st, "Due to the procyclical funding structure of the real estate project financing (PF) market, the ups and downs of the real estate market continue to significantly impact the soundness of the financial sector through PF projects," and urged, "Relevant agencies should jointly review measures to fundamentally improve the current structure."

Vice Chairman Kim made these remarks while presiding over a financial market issue review and communication meeting at the Korea Institute of Finance's main conference room in Jung-gu, Seoul. He said, "The excessive supply of PF funds without thorough review of project feasibility and risks, riding on the past low-interest-rate trend, is expanding the procyclicality of PF funding."

The meeting, held on-site, was attended by government officials, related agencies, and market experts including the Financial Services Commission, Financial Supervisory Service, Korea Institute of Finance, International Financial Center, NICE Credit Information, and KB Securities.

Participants noted that although the domestic financial market has shown stability amid growing expectations of interest rate cuts following the December U.S. Federal Open Market Committee (FOMC) meeting, the timing and pace of rate cuts remain variable. They also mentioned that if future monetary policy shifts diverge from market expectations, financial market anxiety could resurface.

Vice Chairman Kim emphasized, "A shift in monetary policy does not mean a return to ultra-low interest rates," adding, "While interest rates may be lower than now, they could still be burdensome to the economy. Therefore, the government will steadfastly maintain preparedness to respond to prolonged high interest rates and potential market instability."

Regarding the real estate market, considered one of the major risks next year, many experts assessed that it is unlikely to enter a long-term recession cycle or crisis situations such as a sharp price drop. However, they pointed out that due to the impact of high interest rates and other factors limiting buyers' purchasing power, a rapid recovery of the real estate market is difficult to expect.

Vice Chairman Kim stated that the government will continue to make its best efforts to establish financial market stability next year based on close cooperation and communication with related agencies and the financial sector.

Furthermore, on the issue of real estate PF, he reaffirmed the basic principle of normalizing projects based on voluntary agreements among PF project participants according to the feasibility of each project site. He emphasized that the government will continue to support smoother facilitation of such voluntary agreements among operators.

He also requested that, as prolonged high interest rates may increase the risk of financial sector insolvency such as delinquencies among marginal borrowers, the financial sector should proactively and independently manage soundness, while the Financial Supervisory Service should take an active role.

Vice Chairman Kim concluded, "Thanks to the joint efforts of the government, related agencies, and the financial sector, our financial system has maintained soundness and resilience capable of stably absorbing a certain level of external shocks," and urged, "Please continue the joint efforts to stabilize the market in 2024 as well."

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