Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes Financial System Stability Assessment with the Republic of Korea

April 20, 2020

– the Executive Board of the International
Monetary Fund (IMF) concluded the Financial System Stability Assessment


with the Republic of Korea on March 27, 2020 without a meeting.


The FSSA was prepared by a staff team of the IMF for the Executive
Board’s consideration on Friday, March 27. The staff report reflects
discussions with the Korean authorities in September and December 2019
and is based on the information available as of end June 2019. It
focuses on Korea’s near and medium-term financial stability challenges
and policy priorities and was prepared before COVID-19 became a global
pandemic and resulted in unprecedented strains in global trade,
commodity and financial markets. It, therefore, does not reflect the
implications of these developments and related policy priorities. Staff
is closely monitoring the situation and will continue to work on
assessing its impact and the related policy response in Korea and

According to the FSSA, operating within a trade dependent open economy,
Korea’s financial system is among the most developed and internationally
connected in Asia. The authorities maintain a comprehensive, rules-based
oversight system. The overall financial system appeared resilient, but with
growing vulnerabilities. Stress tests suggested that banks and insurers, in
aggregate, can weather severe macro financial shocks (similar to a
potential near term COVID-19 implied fallout on economic activity and the
financial sector), although some banks would make use of capital
conservation buffers. Growth-related uncertainties in view of the global
macroeconomic conditions, COVID-19 crisis, and elevated household debt
remain key risks to financial stability.

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The Korean authorities have continued their efforts at upgrading the
prudential, legal, and supervisory framework for the financial sector, and
keeping up with international standards and practices in other G20
jurisdictions. The authorities have been strengthening the system with
micro and macroprudential measures (MPMs) against vulnerabilities,
strengthening the crisis management framework, and upgrading the prudential
and legal framework.

Looking ahead, the FSSA suggests moving toward a more forward-looking
monitoring and systemic risk identification mechanism. The reliability of
various stress tests could be augmented with advanced methods, system-wide
monitoring, and testing the overall leverage related to residential
properties, households’ resilience to adverse shocks, and sovereign
contingent liabilities. Stronger focus is required on systemic risks
emanating from securities market activities that can amplify contagion,
including sudden redemption and liquidity pressures in the funds and asset
management industry. Financial conglomerates and others connected directly
or indirectly with the Korean financial system need to come under the
purview of systemic monitoring. Onshore financial markets, including the
foreign exchange (FX) market must deepen to expand options for managing
currency and capital flow risks. A review would be beneficial of housing
market financing structures and implicit subsidies, pension funds market,
and the overall role of state-owned banks in the financial system.


The Financial Sector Assessment Program (FSAP), established in
1999, is a comprehensive and in-depth assessment of a country’s
financial sector. FSAPs provide input for Article IV consultations
and thus enhance Fund surveillance. FSAPs are mandatory for the 29
jurisdictions with systemically important financial sectors and
otherwise conducted upon request from member countries. The key
findings of an FSAP are summarized in a Financial System Stability
Assessment (FSSA).

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The Executive Board takes decisions under its lapse-of-time
procedure when the Board agrees that a proposal can be considered
without convening formal discussions.

IMF Communications Department

PRESS OFFICER: Keiko Utsunomiya

Phone: +1 202 623-7100Email: