Risk Management
Financial Supervisory Service Chairman Jin Woong-seop convened a meeting on December 15 and called for better risk management with regard to an interest rate hike by the Federal Reserve.
“The Fed raised its benchmark interest rate by 0.25 percentage points as expected,” the head of the financial watch dog mentioned, adding, “This signals the end of low interest rates and, as such, we need to be prepared for a continuous rise in interest rates from now on.”
He emphasized on the management of risks by insurers and securities firms in particular. This has to do with the current situation in which the ratio of marketable bonds to total assets is low in the case of banks and thus their bond valuation losses are not significant even after an increase in interest rates but things are the other way around in the case of insurers and securities firms. “Risk management should be further strengthened in those financial companies that are more vulnerable to an interest rate rise in terms of asset ratio, profitability, etc.,” he went on to say.
“The rise in the market rate is likely to result in a larger amount of non-performing loans on the part of low-income households and debtors with multiple loans, and then financial companies will begin to collect their debts,” he also explained, continuing, “A significant impact on the entire economy will follow in that case, and thus financial companies need to take a bigger role as intermediaries and risk managers.”