Lee Chan-jin Warns of Increased Market Volatility from Rate Hike... Orders Comprehensive Review of Corporate and Vulnerable Borrower Risks

Financial Supervisory Service Holds Financial Situation Review Meeting

Lee Chan-jin, Governor of the Financial Supervisory Service, has called for thorough countermeasures in anticipation of potential increased volatility in the financial markets following the Bank of Korea's base rate hike. He instructed a review and response plan for sector-specific risks stemming from the rate hike, such as deteriorated corporate funding conditions and the increased interest burden for vulnerable borrowers.

Lee Chan-jin, Governor of the Financial Supervisory Service, is delivering opening remarks at the CEO roundtable of asset management companies held at the Korea Financial Investment Association in Yeouido, Seoul on July 13, 2026. Photo by Dongjoo Yoon

On July 16, Governor Lee held a 'Financial Situation Review Meeting' to assess trends in the financial markets and both domestic and external risk factors following the Bank of Korea Monetary Policy Board's 25 basis point (1bp = 0.01 percentage point) base rate increase.

Governor Lee stated, "This base rate hike is in line with market expectations," but added, "In a situation where volatility in the domestic stock market has significantly increased, future financial market volatility could grow further due to instability in the Middle East and the potential for additional base rate increases in the United States," thus calling for a robust state of readiness.

The Financial Supervisory Service plans to first examine the possibility of corporate funding becoming more challenging due to rising market interest rates and will support financial institutions such as banks to ensure the timely provision of necessary funds. In addition, the agency will review the impact of increased debt repayment burdens on mid- and low-credit borrowers, small self-employed business owners, and vulnerable companies, and will support stable provisioning of productive and inclusive finance by the banking sector.

Moreover, the Financial Supervisory Service will strengthen guidance on soundness management, such as proactive handling of delinquent assets, in preparation for deterioration in the financial soundness of institutions due to factors including a rise in loan delinquency rates. It will also closely monitor the liquidity status of small- and medium-sized financial institutions and, if necessary, induce preemptive liquidity expansion.

The agency is also preparing for a possible increase in forced sales due to heightened stock market volatility. It will continue monitoring credit loans and unsettled trades at each securities firm and will proactively respond if any signs of abnormality are detected.

In the insurance sector, the Financial Supervisory Service will encourage enhanced risk management, such as narrowing the asset-liability duration gap caused by rising interest rates. It also plans to continually monitor foreign exchange rates, trading volumes, and conditions for foreign currency funding and management by financial companies, in line with the advent of a 24-hour trading system in the foreign exchange market.

Governor Lee stressed, "It is necessary for the solid recovery trend in the real economy to spread throughout our economy and the financial sector as a whole," and requested, "Please work closely with related agencies to ensure financial market stability and sound management of financial companies, and make every effort in your work."

This content was produced with the assistance of AI translation services.