SEOUL, Sept. 22 (Xinhua) -- South Korea's central bank warned of growing financial imbalances amid higher housing prices and interest rate hikes, though the overall financial system remained stable due to resilient financial institutions and solid external payment capabilities, according to the Bank of Korea (BOK)'s financial stability report on Tuesday.
The financial vulnerability index, which gauges medium- to long-term financial imbalances, rose to 46.5 in the second quarter of 2026, continuing to go up from 37.6 tallied in the first quarter of 2024.
The climb was driven by expanding household credit and a continuous uptick in housing prices in the capital, Seoul, and its surrounding areas.
The financial stress index, which measures short-term financial system imbalances, ticked up to 19.3 in July and 19.5 in August, staying within the "caution" threshold of 12 to 24.
The BOK noted that while robust semiconductor exports continued to propel strong economic growth, interest rate hikes could undermine the debt-servicing capabilities of vulnerable borrowers.
The central bank delivered a back-to-back rate increase in July and August, lifting its key interest rate to 3.00 percent.
The Asian country's household debt-to-gross domestic product (GDP) ratio fell to 85.3 percent at the end of March from 88.1 percent three months earlier, but the deleveraging was caused by rapid GDP growth from the chip export boom rather than actual debt reduction, the BOK explained.
The central bank urged continued deleveraging efforts to prepare for potential shifts in global economic conditions, including a possible decrease in artificial intelligence (AI)-related investments.
The BOK added that external factors such as the U.S. Federal Reserve's monetary policy, fluctuations in global long-term market rates and geopolitical risks in the Middle East could amplify volatility in domestic financial and foreign exchange markets, potentially straining liquidity and funding conditions for local financial institutions. ■
