32 pct. of execs, experts expect `huge shock` in financial market

A third of Korean finance executives and market experts expect a huge shock in the domestic financial market soon, according to a Bank of Korea report on financial stability released Thursday.

The central bank surveyed 74 experts including the heads of strategy and risk management departments at financial companies, fund managers and dealers to study financial market risks.

On the likelihood of a serious shock to the financial system within a year, 32.4 percent responded “highly likely” and 35.1 percent “maybe.” The key risks to the Korean financial system (multiple answers) named were the European debt crisis (75.7percent), Korea`s household debts (67.6 percent), slowing growth in emerging economies including China (55.4 percent), and political and geopolitical risk (50 percent).

Non-banking financial experts such as savings banks and credit card companies, in particular, called household debt the most difficult risk factor for a financial institution. The report said, “Management health at banks is improving in general while savings banks are expected to see further losses due to large deficits last year and a rising delinquency rate.”

The report, which the Bank of Korea has issued twice a year since 2003, has been elevated to a mandatory one after the Bank of Korea Act was revised in August 2010 to specify its financial stability role.

jarrett@donga.com