FSC warns banks of risk ahead as interest rates rise

The financial regulator said Monday it will ask banks to improve their risk management process for at-risk borrowers, as rates are on the rise.

Choi Jong-ku, chairman of the Financial Services Commission (FSC), also said the FSC will require non-banking financial institutions to adopt tougher guidelines for loans extended to self-employed business owners.

Choi made the remarks at a meeting of chief executives of banks and other financial institutions earlier in the day.

“[The FSC] will closely monitor lending practices of some non-banking institutions for people with lower creditworthiness,” Choi said.

As widely expected, the U.S. Fed raised its rate by a quarter of a percentage point to a range of between 1.75 percent and 2 percent earlier this month, signaling that two more rate increases may be on the cards this year.

Industry sources said commercial lenders in South Korea were set to raise their lending rates.

It is feared that rising bank lending rates will increase the debt servicing burden of local households, especially in the low-income bracket.

According to an estimate by the Bank of Korea, a 0.25 percentage point increase in bank lending rates would raise the household interest burden by 2.3 trillion won ($2.1 billion).

Yonhap