BOK warns real estate and stock market bubble are similar to 1997 currency crisis: The DONG-A ILBO
According to the BOK’s Financial Stability Report for the first half of 2021 released on Tuesday, South Korea’s Financial Vulnerability Index, which measures the resilience of a financial market with a score ranging from 0 to 100, has increased by 17.0 points compared to the fourth quarter of 2019 to 58.9. in the first quarter of this year. This is the highest figure since the fourth quarter of 2008, when it was 60.0 points in the midst of the global financial crisis. A higher index indicates that when there is an internal or external shock, it tends to have a greater negative impact on the financial market and the economy in general. In particular, the risk index for asset prices, including real estate and equities, recorded 91.7 points, which is close to 93.1 points in the second quarter of 1997, just before the currency crisis.
“As the short-term financial instability caused by COVID-19 is being addressed, the potential vulnerability of the financial system has extended from the medium to long term,” the report said. He explained that individuals’ risk appetite has increased with easy access to loans thanks to low interest rates and increased government spending, which has led to excessive investments in inventory. This has resulted in an increase in asset prices, causing instability in the financial system.
“Considering a prescribed investor rate, it is too expensive,” the Seoul property prices report said. This means that even though prices have skyrocketed due to excess liquidity and excessive investment using loans, they can drop significantly once the interest rate is raised or other factors come into play. force. A BOK member also said the cryptocurrency is the result of excessive risk appetite, calling for caution among investors.
The BOK has warned that if the current financial imbalances persist, South Korea’s economic growth rate will be less than -1.0%. Economic crises due to financial problems not only have a huge impact on the national economy as a whole, but also leave deep wounds in the lives of many people, as seen in the case of the currency crisis in 1997 and the global financial crisis in 2008. The South Korean government is expected to actively control household debt and business loans, which represent 104.7% and 111.6% of the country’s GDP, respectively.