SEOUL: South Korea’s financial market continues to be stable, but a build-up of financial imbalance remains worrisome, according to the Bank of Korea (BoK).

       In a regular report on financial stability, the BoK also called for vigilance against a rise in debt of households and companies amid the Covid-19 pandemic, Yonhap reported.

       The nation’s financial stability index shot up to 22.3 in April last year, breaching the lower boundary for a crisis warning, but it has since come down to 1.8.

       At the end of March, outstanding debt of South Korean households reached 1,765 trillion won (RM6.5 trillion), up 9.5% from a year ago.

       The growth pace of household debts accelerated last year.

       It grew 4.6% in the first quarter of last year, 5.2% in the second quarter, 7% in the third quarter and 7.9% in the fourth quarter, according to the report.

       Local households’ ability to pay back their debts worsened due to reductions in income, apparently caused by the coronavirus pandemic.As of the end of March, households’ debt to disposable income ratio came to 171.5%, up 11.4% from a year ago, the report said.

       Outstanding debt of South Korean firms stood at 1,402 trillion won at the end of March, up 14.1% from a year ago, according to the BoK.

       With the nation’s economy showing signs of a strong rebound, the BoK has hinted that it could raise interest rates later this year.

       Last month, the BoK sharply raised its 2021 growth outlook to 4%, higher than its February estimate of 3%.

       BoK governor Lee Ju-yeol has said South Korea would prepare for an “orderly” exit from the pandemic-era monetary easing if economic recovery remains solid.

       The timing of normalisation will depend on the pace of economic recovery, the situation of Covid-19 and risks of financial imbalances, Lee said.

       Separately, Yonhap said the BoK has decided to issue three-year monetary stabilisation bonds, in an effort to better control liquidity.

       The BoK said it would significantly reduce the amount of two-year monetary stabilisation bonds to reduce volatility in bond markets in the wake of the sales of longer-term bonds.

       At the end of last month, about 80% of outstanding monetary stabilisation bonds had maturities of two years, a BoK official said.

       The three-year bonds are expected to help the BoK have more measures to control liquidity, the official said. — The Korea Herald/ANN