S.Korea central bank sees low possibility of banking crisis in country

SEOUL (Reuters) – South Korea’s central bank said on Wednesday it saw little possibility of the country encountering a banking crisis or any trouble similar to events in the U.S. and Europe earlier this year.

Even another banking crisis on a global scale was unlikely to cause sudden capital flight out of the country, the Bank of Korea (BOK) said in its bi-annual financial stability report.

“Assessment of our financial system’s underlying risks shows there is low possibility of domestic financial institutions going through a similar circumstance to that of Silicon Valley Bank or Credit Suisse,” the BOK said.

“They are well-prepared to respond even if such events do occur,” it added, citing non-bank financial institutions’ ample liquidity, online lenders’ holdings of high liquidity assets and strict rules for writing off bonds.

Earlier this year, a series of bank troubles in the United States and Europe sparked worries about a financial crisis across global financial markets, triggering central banks’ prompt responses to contain them from developing into contagion.

The BOK said capital flows in the local market remained stable during the time of global banking uneasiness, unlike during past global financial crises, attributing it to improved external soundness and credibility.

On the domestic real estate market, the central bank said financial stability risks were overall at a manageable level, as they had caused a limited amount of defaults so far and financial institutions stayed resilient.

There is still a need to pre-emptively prepare for house prices dropping sharply over a short period of time as worries persist over high interest rates and slowing growth, it added.

(Reporting by Jihoon Lee; Editing by Raju Gopalakrishnan)