FSC chief expects current account to return to black by year's end

Economy

Published: 10 May. 2023, 20:53 Updated: 10 May. 2023, 20:53

FSC chief expects current account to return to black by year's end

Members of the diplomatic corps in Korea and Korean financial companies pose with keynote speakers at the Korea Economic Forum,organized by the Korea JoongAng Daily at Westin Josun Seoul on Wednesday. [PARK SANG-MOON]

Financial Services Commission (FSC) Chairman Kim Joo-hyun projected that Korea's current account balance will enter the black by the end of this year.

Kim's prediction comes as the FSC cautiously monitors whether recent trade deficits are transitory or persistent.

Kim presented the prospects of Korea's trade and economic growth and the regulator's policy direction to ease the burden of rising interest rates while ensuring the potential growth at the 17th Korea Economic Forum at the Westin Josun Seoul on Wednesday. A total of 130 people attended the event hosted by the Korea JoongAng Daily.

Attendees included financial leaders, including KB Financial Group Vice Chairman Hur Yin, Hana Financial Group Vice Chairman Kang Seong-muk and Shinhan Bank CEO Jung Sang-hyuk, as well as people from 30 different companies. Ambassadors and diplomats representing nearly 40 countries including Australia, France, Norway, Turkey, Kenya, Indonesia, India, Egypt, Singapore and Malaysia also attended.

The forum "has served as a platform connecting the government and international community in Korea, as well as Korean and foreign companies operating in the country," Korea JoongAng Daily CEO Cheong Chul-gun said in his welcoming speech at the event.

FSC Chairman Kim Joo-hyun speaks at the Korea Economic Forum hosted by the Korea JoongAng Daily on Wednesday. [PARK SANG-MOON]

In the second session, Kang Hwan-seug, vice minister of the Defense Acquisition Program Administration, highlighted Korea's rising arms exports to a broader range of countries, especially in Europe.

Between the keynote speech and the second session, Gangwon Gov.

Kim Jin-tae briefed the attendees about his province's impending transition into a special self-governing entity.

In a keynote address titled "Financial Policy Environment and Key Policy Directions," Kim Joo-hyun explained the Yoon Suk Yeol government's financial policies, its achievements and the future direction.

"We believe the current account balance will return to a surplus by year's end, but we're still discussing trends, like whether the relationship with China is transitory or becoming permanent, and their significance," the FSC chairman said.

Korea logged a $4.46 billion current account deficit in the first quarter, the first quarterly deficit in 11 years, according to the Bank of Korea on Wednesday.

However, the current account balance in March was $270 million in the black, swinging back from a shortfall for two consecutive months, helped by increased dividend payments from overseas.

"Current account and trade balances have been hurt by complex issues, including a dramatic deceleration of exports to China and a weak economy for chips that account for around 20 percent of Korea's exports," Kim said.

Exports to China have been shrinking for 10 straight months through April, while semiconductors are suffering from a downturn due to lower-than-expected demand from a weak global economy.

One of the most pressing tasks is to ensure financial stability in the face of a potential credit crunch owing to project financing in the real estate market. Korea managed to avoid the real estate market crash and is on a path toward a "soft landing."

"After going through a crisis last year, we've managed to avoid the hard landing, and I believe we will be able to achieve a soft landing in the property market," Kim said during the speech.

Risks in project financing, or long-term funding for infrastructure, became a major concern in the second half of last year following a steep jump in policy rates and the default of a theme park developer, which triggered a liquidity crunch in 2022.

The delinquency rate for real estate project financing at securities companies was 10.4 percent as of the end of last year, up from 3.7 percent a year earlier. The rate was lower at other institutions, including 0.01 percent at banks and 2 percent at savings banks. The overdue balance of real estate project financing jumped more than 170 percent in the same period to 465.7 billion won ($351 million).

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun also emphasized the monitoring of project financing, saying the authorities are keeping an eye on "each project site" to address the market during his trip to Singapore on Tuesday to help attract foreign investment.

"We've resolved concerns in the financial market through micro-re structuring, and Korea is in a relatively stable condition now," Kim added, noting that Korea's rating was among the highest in the world.

Korea Asset Management Corporation (Kamco) announced last week it will create a 1 trillion won fund with Korea's five largest financial holding firms — KB Kookmin, Shinhan, Hana, Woori, NongHyup — to help real estate project financers normalize their activities. Kamco will finance 500 billion won and the companies the rest.

"The ripple effects of insolvency in real estate project financing on the economy and finance are large, and it takes a considerable amount of time to recover, so preemptive measures need to be taken before the insolvency is realized," Kamco said.

However, Kim brushed off concerns about the soundness of savings banks.

"It's true the delinquency rate at secondary financial firms is rising, but it's manageable. The rate is at a level that will not grow into a crisis," he said.

Savings banks were active financiers of real estate project financing when the policy rate was low. Their loan delinquency rate was 3.4 percent at year-end, compared to 2.5 percent a year earlier.

The delinquency rate for household debt was 4.7 percent and corporate loans 2.8 percent, up 1 percentage points, respectively in the same period, according to the FSS.

China's reopening of its economy was expected to boost Korea's exports, but the impact has so far been weak.

China's service-centered growth and Korea's growing imports of raw materials for reusable batteries from the country are largely responsible for the limited impact, according to Bank of Korea data last month.

The positive impact of China's reopening has yet to be seen in full swing in Korea and other Asian countries like Japan and Taiwan, according to the central bank.

Korea is not alone in this regard, said the central bank. Other countries in Asia, like Japan and Taiwan, have yet to experience a positive impact in earnest from China's reopening, either.

Kim noted the importance of easing regulations on financial firms to help them launch relevant products and services in the digital era. However, he remained cautious regarding crypto asset regulations and pledged to protect crypto investors from fraud.

"There are a lot of limits for financial companies to launch non-financial businesses. We're pushing to more elastically ease the regulations."

KB Kookmin Bank received official approval from the country's financial regulator last month to continue its budget mobile telecommunications service after a four-year trial in a regulatory sandbox program.

Shinhan Bank is operating a food delivery app under time-bound approval from the FSC.

"We will watch the trend for a little longer on whether — and through which means — crypto assets will be officially adopted into the mainstream. Our basic stance is that we observe the global trend," Kim said.

He added that the Korean government will first establish a system that protects investors, many of whom have suffered losses over a series of incidents, including the crash of the cryptocurrency Luna that wiped out an estimated $60 billion worldwide last May.

Kim's speech was followed by Gangwon Gov. Kim Jin-tae, who said his province's imminent transition into a more autonomous jurisdiction will offer "greater freedom to the people of Gangwon."

Gangwon is located on the east coast of Korea and hosted the PyeongChang 2018 Winter Olympics.

"We've decided on a vision for Gangwon' State' as a 'global city for industries of the future.' It reflects our will to corner future industries, like chips, bio, hydrogen energy and e-mobility through bold innovation," the governor said.

Attendees in the top photo: First row from left, Charge d’Affaires of Kenya Kipkosgei Toroitich, HSBC Korea CEO Jung Eun-young, Ambassador of Ecuador Carlos Eduardo Emanuele, Ambassador-designate of Mexico Carlos Penafiel Soto, Ambassador of Dominican Republic Federico Alberto Cuello Camilo, CEO of the Korea JoongAng Daily Cheong Chul-gun, Financial Services Commission Chairman Kim Joo-hyun, Ambassador of Norway Anne Kari Hansen Ovind, Ambassador of Pakistan Nabeel Munir, Ambassador of Rwanda Yasmin D. Amri Sued, Ambassador-designate of Guatemala Sara Solis, Ambassador of Serbia Nemanja Grbic, Minister and Deputy Chief of Mission of Thailand Bancha Yuenyongchongcharoen, and Counsellor of Cambodia Lourn Saboeun. Second row, from left: Charge d’Affaires of Brunei Nur Afiqah Arifin, Deputy Head of Mission of Singapore Adrian Li, Deputy Head of Mission of Australia Alexandra Siddall, First Secretary of Angola Abel Paxe, Deputy Chief of Mission of India Surinder Bhagat, Charge d’Affaires of Tunisia Ahmed Chamsseddine Boughedir, KB Financial Group Vice Chairman Hur Yin, Ambassador of Belarus Andrew Chernetsky, Ambassador for International Affairs of Gangwon Shim Jae-hyun, Ambassador of Sierra Leone Kathos Jibao Mattai, Shinhan Bank CEO Jung Sang-hyuk, Ambassador of Ghana Charis O-L. Zwennes, Head of Economic and Commercial Affairs of Slovakia Michal Bordean, Charge d’Affaires of Poland Arletta Brzozowska, Deputy Head of Mission of Sweden Johannes Andreasson, Charge d’Affaires of Colombia Francisco Alberto Gonzalez, and Deputy Head of Mission of Latvia Peteris Podvinskis.

BY JIN MIN-JI [jin.minji@joongang.co.kr]