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Global protectionist policies, increased trade pressures, and accumulating household debt were named in a Bank of Korea (BOK) survey as the biggest risk factors for the South Korean financial market.

It’s a sharp contrast with just six months ago, when geopolitical risks associated with North Korea were given as the main factor.

On May 13, the BOK released findings from a system risk survey for the first half of 2018. The 72 domestic and overseas finance experts surveyed named global protectionism and increased trade pressures (76 percent), accumulating household debt (74 percent), US Federal Reserve Bank interest hikes and other monetary policy normalization measures by major economies (74 percent), and real estate market uncertainties (50 percent) as major risk factors for the South Korean financial market. Respondents were allowed to choose up to five options.

The single most important risk factor named by respondents was accumulating household debt (26 percent of simple responses), followed by global protectionism/intensifying trade pressures (17 percent), monetary policy normalization (15 percent), and real estate market uncertainties (11 percent).

The survey was administered between Apr. 16 and 27 to 55 financial institution executives, nine research staff members and university professors from related academic associations or institutes, and eight South Korean investment officials at overseas financial institutions.

The BOK conducts the same survey twice a year; the last one, carried out in Nov. for the second half of 2017, had North Korea-related geopolitical risks cited by 82% of respondents, ranking second only to household debt (87 percent) as a major risk factor. But with geopolitical tensions around the Korean Peninsula easing significantly in early 2018 thanks to a recent inter-Korean summit and North Korea-US dialogue, geopolitical risks were no longer one of the top risk factors given as the rate of response dropped to 38 percent.

In contrast, the percentage of responses naming global protectionism and intensifying trade pressures tripled from 26 percent in the last survey to emerge as the biggest risk factor this time around.

When asked about the likelihood of financial system risks emerging in the short term (within one year), 56 percent of respondents rated it as “low,” far outnumbering the 9 percent rating it as “high.” But nearly twice as many respondents rated the likelihood of such a risk emerging in the intermediate term (one to three years) as high (38 percent) than low (20 percent).

By Lee Soon-hyuk, staff reporter

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