Shin Sungwhan: "Threats to Financial Stability from Household Debt Must Be Addressed Through Policy Coordination with the Government"

Lead Committee Member's Message on the September Financial Stability Status Review

"The threat to financial stability posed by household debt must be addressed through close policy coordination with the government."

Shin Sungwhan, Monetary Policy Committee Member of the Bank of Korea.

Shin Sungwhan, Monetary Policy Committee Member of the Bank of Korea, emphasized in the lead committee member message of the "September 2025 Financial Stability Status Review" report released by the Bank of Korea on the 25th, "The growth of household debt has somewhat eased, thanks to government measures and other factors. However, as expectations for rising housing prices in the Seoul metropolitan area persist, it is important to respond through close policy coordination."

Shin stated, "The Korean financial system remains generally stable, supported by the robust resilience of financial institutions and external payment capabilities." However, he cautioned that, in addition to the threat to financial stability from household debt, attention should also be paid to the expansion and prolongation of distress among vulnerable self-employed individuals, as well as the deterioration of financial institutions' soundness due to corporate insolvencies.

He noted, "With the policy rate cuts and the government's efforts to boost domestic demand, borrowers' debt repayment burdens are expected to gradually ease. However, given the continued uncertainty in the growth trajectory, it is difficult to rule out the possibility that distress among vulnerable self-employed individuals will expand and persist." He also pointed out, "There are ongoing concerns that corporate insolvencies are increasing in sectors facing both cyclical and structural downturns, which could undermine the soundness of financial institutions with significant exposure to these sectors."

Meanwhile, he assessed as positive the recent progress in the government's real estate project financing (PF) restructuring and the strengthened efforts by financial institutions to resolve non-performing loans. However, he pointed out that the ratio of substandard and below loans at some non-bank financial institutions continues to rise, and this warrants careful attention.

Shin emphasized, "The outlook for financial stability will largely depend on uncertainties in domestic and global economic conditions, the growth momentum of the real sector, and the situation in the real estate market. As there is a possibility that financial imbalances may widen again during the process of easing financial conditions, it is necessary to maintain a strong macroprudential policy stance for the time being."

He added, "Given the potential for further expansion of distress due to the prolonged downturn in the construction and regional real estate markets, as well as restructuring in certain industries, efforts by financial institutions to manage soundness must continue. In addition, changes in domestic and external factors-such as the impact of U.S. tariff policies and shifts in major countries' monetary policies-could increase volatility in the financial and foreign exchange markets, so it is important to monitor these developments closely and pay attention to liquidity management by financial institutions toward the end of the year."

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