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  • Vietnams Construction Firms Struggle to Secure Cash Amid Unsold Inventory
    Vietnam's Construction Firms Struggle to Secure Cash Amid Unsold Inventory Vietnam's real estate market is experiencing an imbalance characterized by both increased supply and a slowdown in transactions. In the second quarter of this year, new commercial housing permits rose compared to the previous quarter, signaling an expansion in supply, yet successful transactions fell short of earlier figures. Inventory has also increased across apartments, single-family homes, and land. With high property prices and burdensome loan rates dampening buyer interest, construction companies are taking measures to defend their cash flow through bond issuance, asset sales, and adjustments to sales schedules.According to local media, including VnExpress, real estate transactions in Vietnam for the second quarter of 2026 totaled 100,105, which is only 71.5% of the first quarter and 63.7% of the same period last year. Transactions for apartments and single-family homes reached 26,567, maintaining only 86.1% of the previous quarter, while land transactions dropped to 73,438, a decrease of 67.4% from the prior quarter.In contrast to the decline in transactions, supply has rapidly increased. The number of new commercial housing project permits in the second quarter reached 113, totaling approximately 103,205 units, marking a 194.8% increase from the previous quarter and more than tripling compared to the same period last year.The increase in inventory particularly highlights the weakening absorption capacity of Vietnam's housing market. Among 34 regions, 25 reported project inventories totaling approximately 39,284 units and plots. Apartment inventory rose to 12,823 units, up about 22.2% from the previous quarter, while single-family homes increased to 15,313 units, a 46.4% rise, and land plots grew to 11,148, up 25.4%.Supply Increases, Transactions CoolAdditionally, price pressures and high financial costs are suppressing buyer activity. According to the Ministry of Construction, the average price of apartments in the secondary market is approximately 12.3 million dong (about $636) per square meter in Hanoi, 10.8 million dong (about $558) in Ho Chi Minh City, and 6.9 million dong (about $357) in Hung Yen. Although land transaction prices have decreased by about 2-3% from the previous quarter, this has not significantly improved accessibility. Real estate loan rates are typically around 12-14% annually, with some variable-rate loans reaching as high as 15-16%.Changes in the financial environment are also altering how companies secure funding. Data from the Hanoi Stock Exchange indicates that in August, real estate firms issued four bonds, raising approximately 4 trillion dong, with an average issuance rate of 12.2% annually. One major real estate company issued bonds totaling 30 trillion dong in two rounds, with rates of 11% and 12.5%, respectively. Real estate developer Kinh Bac secured 700 billion dong at an initial rate of 12% for a three-year term.Asset disposals and project transfers are also being utilized as means to secure cash. Real estate group Novaland has completed the transfer of four assets valued at a total of 11.266 trillion dong. This has allowed the company to execute about 72% of its asset liquidation plan, which aims to raise 15.617 trillion dong for debt repayment. The company still holds five assets for sale, four of which, valued at approximately 3.931 trillion dong, have preliminary agreements, but final transfers have not yet been completed.Buyers are also acting selectively. Data from the Vietnamese real estate platform Batdongsan.com.vn shows that in the second quarter of this year, the interest in purchasing real estate was approximately 37% for apartments, surpassing 23% for land and 22% for single-family homes. In Hanoi, interest in apartments rose from 38% in January to 49% in June, while interest in single-family homes dropped from 26% to 17%.Unsold Market, Resilient CompaniesIndustry insiders report that the sluggish transaction volume is directly leading to cost pressures. A sales manager at a real estate brokerage in Ho Chi Minh City noted that transaction volumes have decreased by 70-80% compared to the same period last year. Despite increasing advertising expenses and expanding customer acquisition channels, there were months with no contracts at all. He stated, "If the situation does not improve, brokerages will have to cut costs and reduce staff to maintain operations."Developers are also focusing more on cash recovery than expansion. A representative from a real estate company in the Ben Thanh area mentioned that they are postponing new project launches and concentrating on completing ongoing projects to expedite handovers and cash recovery. He said, "Currently, recovering funds takes precedence over expanding investments. Given the high interest rates and slower-than-expected sales pace, taking on additional debt is a risky decision."Market exits are also increasing. According to the General Statistics Office of Vietnam, 1,463 real estate companies completed dissolution procedures in the first half of this year, more than double the number from the same period last year. This averages about 243 companies closing each month.Experts diagnose that credit and price pressures are becoming key factors determining the resilience of companies. Bo Hong Tang, Deputy General Director of DKRA, stated, "The weakening purchasing power is more clearly revealing the financial pressures on companies with weak capital bases." Le Hoang Chau, President of the Ho Chi Minh City Real Estate Association, noted, "Restrictions on real estate loans from some banks and rapid interest rate increases are putting significant pressure on the market," adding that some companies are facing loan rates adjusted to 19-20% annually.Meanwhile, the challenges facing Vietnam's real estate market have shifted from a simple supply shortage to a clash of prices, financial costs, product competitiveness, and purchasing power. Companies with ample cash and low debt can afford to wait for recovery, but those reliant on loans and sales revenue must choose to downsize, collaborate, or transfer assets amid prolonged recovery periods.* This article has been translated by AI. 2026-09-07 12:32:00
  • Retiring Justice Lee Heung-gu Criticizes Legislative Process of Judicial Reforms
    Retiring Justice Lee Heung-gu Criticizes Legislative Process of Judicial Reforms Justice Lee Heung-gu (22nd Judicial Research and Training Institute) expressed his disappointment on September 7 regarding the legislative process of the so-called "Judicial 3 Laws," stating that it fails to adequately reflect the court's perspective.During his retirement ceremony at the Supreme Court in Seocho-gu, Seoul, he remarked, "The Judicial 3 Laws will significantly alter the long-standing trial system and the status and structure of the Supreme Court."He emphasized the need for a proactive response to changes in the judicial system. "The court has a responsibility to ensure that no citizen is harmed and to actively lead changes by reviewing the entire system," he said. "We must begin to contemplate what kind of court we want to create in this era of change and seek answers through collective intelligence."Justice Lee also urged consistent legal judgments on political cases. He stated, "As political cases increasingly come before the court, it is crucial to speak consistently in the language and grammar of the court, rather than political rhetoric. Otherwise, the court will struggle to escape the political maelstrom."On the same day, Justice Lee concluded his six-year term, resulting in two Supreme Court justice vacancies.Chief Justice Cho Hee-dae (13th class) had previously nominated Judge Son Bong-ki of the Daegu District Court (22nd class) as the successor to former Justice Noh Tae-ack, who retired in March. However, the Blue House requested a re-nomination, citing a disregard for the customary prior consultation process. Judge Kim Sung-soo of the Seoul High Court (24th class), nominated to succeed Justice Lee, is set to face a National Assembly confirmation hearing on September 14.As Chief Justice Cho arrived at the Supreme Court that morning, he did not respond to questions regarding the re-nomination plan and other follow-up measures. However, it is anticipated that he will soon address the impact of the vacancies on the operation of appellate court proceedings.* This article has been translated by AI. 2026-09-07 12:28:20
  • CU Sells 400,000 Taegukgi Lunch Boxes, Supports Memorial Project for Lee Tae-joon in Mongolia
    CU Sells 400,000 Taegukgi Lunch Boxes, Supports Memorial Project for Lee Tae-joon in Mongolia Convenience store CU has donated a portion of the proceeds from its 'Taegukgi convenience meal' sales to support the memorial project for independence activist Lee Tae-joon, marking the 81st anniversary of Korea's liberation. On September 3, CU announced that it contributed part of the sales revenue from the Taegukgi convenience meals to the memorial park and museum dedicated to Lee Tae-joon in Ulaanbaatar, Mongolia. The donation ceremony was attended by Choi Jin-won, the South Korean Ambassador to Mongolia, Kim Bo-young, the head of the Lee Tae-joon Memorial Association, Jo Yoon-kyung, president of the Korean Association in Mongolia, and representatives from CU's partner company Premium Nexus and BGF Retail. At the end of July, CU launched three types of Taegukgi convenience meals, including lunch boxes, kimbap, and sandwiches, to raise awareness of Lee Tae-joon's contributions to the independence movement. The packaging features the Taegukgi design and includes a QR code to learn more about Lee's activities. CU stated that for every convenience meal sold, 100 won would be set aside as a donation to support the Lee Tae-joon Memorial Park in Mongolia. The company also collaborated with the Ministry of the Interior and Safety on a campaign titled 'United by the Taegukgi' to promote hanging the national flag on Liberation Day. Consumer participation was significant, with 400,000 Taegukgi convenience meals sold during the campaign period. Over 5,000 people participated in the 'Lee Tae-joon Telemedicine Center' event conducted through CU's own commerce app, Pocket CU. The event was designed to diagnose five 'mental illnesses' of modern individuals, and the event page received more than 1,500 messages of gratitude and support. Lee Tae-joon opened a medical facility called 'Dongui Guk' in Mongolia, where he provided medical services and supported independence movement organizations, aiding the anti-Japanese activities of the Provisional Government of the Republic of Korea. He served as the royal physician to Bogd Khan, the King of Mongolia, and was posthumously awarded the Order of Merit for National Foundation in 1990 in recognition of his contributions. According to the Ministry of Veterans Affairs' electronic archives, the Mongolian government awarded him the highest national honor at the time in 1919 for his medical contributions. A memorial hall honoring Lee Tae-joon opened in Mongolia in September of last year. Choi Min-geon, head of marketing planning at BGF Retail, stated, "In the future, CU will continue to engage in communicative marketing that realizes social value together with our customers."* This article has been translated by AI. 2026-09-07 12:12:00
  • Seoul Education Chief Jeong Geun-sik Unveils Second-Term Education Blueprint
    Seoul Education Chief Jeong Geun-sik Unveils Second-Term Education Blueprint Jeong Geun-sik, the Superintendent of the Seoul Metropolitan Office of Education, has unveiled the blueprint for his second term in office. The core philosophy is 'Basic Education for All,' which significantly expands the public responsibility for education, covering early childhood education, out-of-school youth, and lifelong learning. The Seoul Education Office plans to implement five policy directions that respect the growth of each student and foster cooperation within the educational community. On September 7, the Seoul Metropolitan Office of Education announced that it officially received a white paper containing the education vision, policy directions, and proposals for promise implementation from the 'Happy Learning Seoul Education Committee,' which serves as the 24th Education Chief's Promise Committee. This white paper is the result of the committee's comprehensive review of various opinions from the educational community, including students, staff, parents, and citizens, gathered during the recent election process. The committee proposed a promise implementation direction consisting of five areas, 15 commitments, and 50 detailed tasks, carefully considering the feasibility and practicality of the promises. Redefining 'Basic Education' from Early Childhood to Lifelong Learning The new educational vision for Jeong's second term has been confirmed as 'Basic Education for All, Happy Cooperative Education.' Here, 'basic education' transcends the traditional concept of compulsory education focused on school-age children. It encompasses early childhood education as a complete public education domain, guarantees the right to learn for out-of-school youth, and ensures comprehensive educational rights for citizens throughout their lives. Superintendent Jeong has adopted the committee's suggestions, establishing the new educational indicators: 'Start with Precision, Build a Strong Foundation, Support Diverse Growth.' This reflects a commitment to ensuring that no one is left behind in learning by providing a fair starting point, solidifying basic academic skills and life competencies, and supporting diverse growth tailored to each student's talents and aptitudes. Five Policy Directions: Creativity, Responsibility, Citizenship, Welfare, and Peace The five main policy directions outlined in the white paper provide concrete solutions to the challenges currently facing Seoul's education. First, 'Future-Oriented Holistic Education of Creativity and Empathy.' This approach aims to keep pace with the age of artificial intelligence and digital technology while ensuring that students develop 'thinking skills' and 'empathy' through diverse learning experiences, including reading, discussion, humanities, arts, and physical education. Second, 'Responsible Education that Guarantees Learning for All.' This includes ensuring basic academic skills and respecting the different learning paces of students, while establishing a robust multi-layered safety net for learning. Third, 'Sustainable Democratic Citizenship Education.' This involves fully integrating ecological transition education to address the climate crisis, enhancing constitutional and historical education, and building a new form of governance in Seoul education that collaborates with parents and citizens. Fourth, 'Educational Welfare that Everyone Can Enjoy.' This includes operating a 'customized integrated support' system for students in vulnerable situations, such as multicultural students and out-of-school youth, and advancing universal educational welfare through support for public transportation costs and continued free education. Fifth, 'Safe and Peaceful Educational Communities.' This involves strengthening programs to protect teachers' rights, boosting staff morale, and placing professional counseling personnel in all schools to promote mental health among students, fostering a peaceful school culture that transcends violence and conflict. Superintendent Jeong: 'We Will Implement Promises Responsibly by Considering School Conditions' The Seoul Education Office plans to use the proposals in the received white paper as a compass for future policy implementation. However, it will comprehensively review whether the individual proposals align with actual school conditions and the feasibility of securing budgets before finalizing specific implementation methods and timelines. To this end, the education office will hold a 'citizen forum' in which students, teachers, parents, general citizens, and relevant experts can participate broadly. Through this forum, the office aims to transparently share the promise execution plan and directly listen to voices from the field, ensuring that policies are not merely theoretical but are friendly to actual school environments. Kim Jae-hyung, chair of the Promise Committee, stated, 'We have collectively considered the direction in which Seoul education should move based on the opinions of students, staff, parents, and citizens. I hope the education vision and policy proposals prepared by the committee will be meaningfully utilized in realizing the promises of Seoul education.' Superintendent Jeong Geun-sik expressed gratitude to the committee members for their wisdom and experience in advancing Seoul education, stating, 'I will carefully consider the opinions and suggestions of the educational community contained in the white paper and responsibly implement the promises of Seoul education by closely examining the conditions of schools and the feasibility of policies.'* This article has been translated by AI. 2026-09-07 12:08:00
  • Deputy Minister Heo Jang: Key Focus on Strengthening Functions in Public Institution Consolidation
    Deputy Minister Heo Jang: Key Focus on Strengthening Functions in Public Institution Consolidation Heo Jang, the Deputy Minister of Finance, stated on September 7 that the reform involving the consolidation of 109 public institutions is focused on strategic resource reallocation rather than immediate cost savings. He emphasized that the goal is not to weaken the public sector's role or merely cut costs, but to prepare for the future by implementing a system that curbs the habitual expansion of public resources.Heo noted, "In the long run, this will enhance productivity in the public sector and help control rising costs. Please focus on how much we can strengthen functions and reallocate resources to contribute to the future economy, rather than just the number of institutions reduced."On September 3, the government announced a plan to reduce about 20% of the public institutions under its management, totaling 109. This includes 15 institutions through strategic restructuring, 11 through the unification of similar and overlapping functions, and 83 through the integration of subsidiaries and smaller institutions.Heo reaffirmed the principle of guaranteeing job security for employees of the institutions being consolidated. He stated, "It is a clear principle that employees should not suffer disadvantages in terms of salary or welfare due to the consolidation. We will also prepare support measures, such as adjusting the salary system and increasing the limits on selective welfare expenses." The government plans to reflect the integration results in public institution management evaluations to provide incentives.However, executives, including heads and directors, will not be guaranteed job security. Heo explained, "If a new institution is created or an existing one is abolished, there may be changes in the status of executives. Each ministry and institution will devise efficient personnel allocation plans."In response to criticism from labor groups about insufficient consultation during the planning process, Heo emphasized that more than five rounds of discussions with labor representatives have taken place. He added that future consultations will involve the Ministry of Finance, the Ministry of Employment and Labor, and higher-level labor unions, alongside discussions between relevant ministries and individual institution unions.Addressing concerns that the debt of the Korea National Oil Corporation could be transferred to the Korea Gas Corporation during their merger, Heo proposed managing the oil corporation's debt and non-performing overseas assets through a separate subsidiary. He stated, "We are considering managing the oil corporation's debt and problematic overseas assets through a separate subsidiary and gradually selling the assets based on market conditions."He also assured that measures would be put in place to protect the interests of gas corporation shareholders, explaining that the purpose of the merger is not merely to improve financial structures but to enhance the capabilities and negotiation power of energy public enterprises.Regarding the approximately 26 trillion won debt of the Korea Coal Corporation, which is set for liquidation, Heo stated that the government will secure liquidation funds through consultations with relevant ministries. The government plans to amend related laws, including the Korea Coal Corporation Act, to initiate the liquidation process, with specific funding allocation plans to be determined later.Heo addressed concerns that existing regional headquarters may be relocated due to the institution consolidation, stating, "The government will not unilaterally decide on the location of headquarters."He clarified that the plan to separate the Korea Land and Housing Corporation (LH) into development and housing welfare and asset management sectors is not a return to the previous system of land and housing corporations. He explained that the aim is to strengthen LH's public nature by establishing a structure that allocates a portion of development profits to a separate account for the housing welfare sector.The merger of Incheon International Airport Corporation and Korea Airports Corporation will be postponed, with an initial focus on functional collaboration. The government plans to establish an airport strategy council to develop cooperation plans for international flight allocations and facility and personnel operations before reviewing the long-term merger of the two entities. Security operations, currently divided by airport, will be consolidated into a separate specialized aviation security agency.Heo concluded, "This announcement is not the end but the beginning," stating that as each ministry develops a roadmap for institutional function reforms and organizational adjustments, the public institution reform promotion team, involving relevant ministries, will regularly monitor the implementation status.* This article has been translated by AI. 2026-09-07 12:08:00
  • Financial Supervisory Service Warns of Risks in Unlisted Stock Investments
    Financial Supervisory Service Warns of Risks in Unlisted Stock Investments Numerous investment fraud cases have emerged, including a multi-level marketing organization that sold unlisted company stocks worth approximately 500 billion won to general investors, prompting a warning from financial authorities.On September 7, the Financial Supervisory Service (FSS) stated, "As interest in the domestic stock market rises, so does the interest in investing in unlisted stocks, which promise high returns before listing. However, unlisted stocks carry high investment risks due to limited information and low trading activity, so investors must exercise caution."In fact, a multi-level stock sales organization, Group A, sold unlisted company stocks worth about 500 billion won to general investors over several years through phone calls and messaging apps like KakaoTalk. However, they never submitted a securities registration statement, violating the Capital Markets Act. The group's representative has been sentenced to prison and fined, with an appeal currently underway.Although Group A was an unlicensed entity, investors were reportedly misled by sales companies with names resembling professional investment firms, such as 'OO Partners' and 'OO Investment.'There have also been cases where claims of developing innovative cancer drugs and plans for KOSDAQ listing were later proven false.The CEO (largest shareholder) of unlisted company B, which operates in the pharmaceutical and biotech sector, sold 5 billion won worth of stocks to general investors, promoting that the product under development was an innovative cancer drug nearing FDA approval and KOSDAQ listing. However, they did not use the investment prospectus required by the Capital Markets Act. The company was aware of the stock sales but failed to follow necessary procedures, such as submitting a securities registration statement.Despite facing high investment risks due to operating losses, investors made decisions without receiving sufficient information, resulting in significant losses.The FSS recommended three key checks before investing in unlisted stocks: searching for company information in the FSS electronic disclosure system, verifying whether the investment solicitation company is a registered financial institution through the Financial Consumer Information Portal, and directly confirming the status of any impending listings.The FSS explained, "Unlisted stocks often have limited disclosure obligations, making it difficult to objectively verify a company's financial status and business details. This can lead to cases where investors are lured by unverifiable claims about new technology development, new business initiatives, or false listing plans."Additionally, the FSS noted, "The infrastructure and number of participants for trading unlisted stocks are limited, making it difficult to sell at the desired time, and investors may need to search for buyers themselves. If the listing process is delayed or fails, investors may be unable to recover their funds for an extended period or incur significant losses."Therefore, investors are advised to directly verify company information through the electronic disclosure system or search the 'Public Offering Information Menu' for securities registration statements and small offering disclosure documents. They should cross-verify company information through the Financial Consumer Information Portal and the Korea Venture Capital Association, especially if the company promotes itself as 'listing imminent,' and ensure to confirm with objective data.* This article has been translated by AI. 2026-09-07 12:08:00
  • KDI Reports Continued Economic Improvement Driven by AI and Semiconductor Sectors
    KDI Reports Continued Economic Improvement Driven by AI and Semiconductor Sectors The Korea Development Institute (KDI) has assessed that the domestic economy continues to improve, driven primarily by the artificial intelligence (AI) and semiconductor sectors. The report highlights significant increases in exports and facility investments as key factors in the economic recovery. However, it notes that this positive momentum has not sufficiently translated into household income and consumption.In its 'September Economic Trends' report released on September 7, KDI stated, "Our economy is maintaining an improvement trend centered on sectors closely related to AI investment." Thanks to expanded domestic and international AI infrastructure investments, exports and facility investments in semiconductors have shown robust growth, and production in related manufacturing sectors, such as metal processing, electrical equipment, and machinery, has also remained relatively strong.Production indicators have continued to show improvement. In July, total industrial production increased by 3.1% compared to the same month last year, surpassing the second quarter average of 2.9%. Manufacturing output rose by 3.6%, and the average utilization rate remained high at 74.9%. Production of machinery equipment increased by 9.6%, metal processing by 6.9%, and electrical equipment by 4.0%.Facility investment, particularly in semiconductors, has shown a steep upward trend. In July, facility investment rose by 24.9% compared to the same month last year. Notably, investment in semiconductor manufacturing equipment surged by 66.0%, while investment in electrical and electronic devices increased by 11.0%. The growth rate of semiconductor manufacturing equipment imports also expanded to 96.5% in August, indicating that related investment is likely to remain strong for the time being.Exports have also continued to thrive, bolstered by global demand for AI investments. In August, exports increased by 68.7% compared to the same month last year, with daily average exports rising by 72.5%. On a daily average basis, semiconductor exports skyrocketed by 216.1%, and computer exports surged by 431.2%. The increase in exports significantly outpaced imports, resulting in a trade surplus of $34.75 billion.However, the economic improvement driven by exports and investments has not fully reached households. KDI remarked, "The economic recovery has not sufficiently permeated household income, leading to a gradual improvement in consumption."In fact, the retail sales index in July decreased by 0.8% compared to the same month last year, reversing from a 3.9% increase the previous month. Sales of durable goods fell by 4.1%, with declines in automobiles (-2.5%), electronics (-0.8%), and communication devices and computers (-14.2%). The average retail sales growth rate for June and July, which smooths out monthly volatility, was only 1.5%, below the first quarter average of 3.2%.The slow recovery of household purchasing power has been identified as a barrier to consumption recovery. The real wage growth rate for all workers in the first half of the year was just 0.3%. Production in the service sector also showed a slowdown, with the growth rate in wholesale and retail declining from 4.1% to 0.1%, and accommodation and food services dropping by 1.0%.Construction investment has also continued to struggle. In July, construction output fell by 3.2%, with residential building activity down by 7.9%. Housing permits totaled 26,000 units, and new construction starts were at 20,000 units, both significantly below the 2021-2025 averages of 38,000 and 29,000 units, respectively. KDI predicts that the sluggishness in the housing sector and high construction costs will lead to a gradual recovery in overall construction investment.While employment growth has somewhat eased, recovery among young people remains limited. In July, the number of employed individuals increased by 108,000 compared to the same month last year, with the growth rate expanding from the previous month. However, manufacturing employment decreased by 68,000. The employment rate for those in their 20s remained at 59.1%, the same as the previous month, while the unemployment rate rose by 0.5 percentage points.Inflationary pressures also persist. The consumer price index rose by 3.1% in August, up from 2.8% the previous month. While the base effect from last year's communication fee discounts significantly influenced this increase, the core inflation rate, excluding communication fees, also exceeded the inflation stability target at 2.6%. Heightened instability in the Middle East has raised concerns about potential upward pressure on oil prices in the future.KDI assesses that external uncertainties remain high, particularly regarding the situation in the Middle East and U.S. trade policies. While the economic recovery continues to be driven by exports and investments, the extent to which this recovery spreads to household income, consumption, construction, and youth employment will be crucial in determining future economic trends.* This article has been translated by AI. 2026-09-07 12:04:20
  • Industrial Loans Increase by 30.6 Trillion Won in Q2, Service Sector Sees Largest Growth in 14 Quarters
    Industrial Loans Increase by 30.6 Trillion Won in Q2, Service Sector Sees Largest Growth in 14 Quarters In the second quarter of this year, industrial loans increased, primarily driven by the service sector. Service sector loans reached their highest level since the fourth quarter of 2022. However, the growth rate compared to the previous quarter has slowed.According to the Bank of Korea on September 7, the outstanding balance of sectoral loans from deposit-taking institutions at the end of the second quarter was 2,065.3 trillion won, an increase of 30.6 trillion won from the end of the previous quarter. This marks a decrease in growth compared to the first quarter's increase of 30.8 trillion won.By sector, the growth in manufacturing loans has slowed, while service sector loans have expanded. Manufacturing loans increased by 8.4 trillion won in the second quarter, down from an increase of 11 trillion won in the previous quarter. This slowdown is attributed to efforts to manage financial ratios at the end of the half-year and early repayments by some companies, particularly affecting facility funds.In contrast, service sector loans rose by 19.9 trillion won, a larger increase than the previous quarter's 19.1 trillion won. This growth was primarily driven by the real estate, finance, and insurance sectors. The construction sector saw an increase in working capital, but a decrease in facility funds kept it at the same level as the previous quarter.Kim Sung-jun, head of the Bank of Korea's Financial Statistics Team, stated, "The increase in service sector loans is the largest in 14 quarters since the fourth quarter of 2022." He explained that the real estate sector benefited from improved lending conditions due to increased guarantees for real estate project financing (PF), while the finance and insurance sectors saw expanded loans due to increased funding demands from securities firms following margin rate hikes in the derivatives market.In terms of loan purposes, working capital loans increased by 23.8 trillion won, up from 21.4 trillion won in the previous quarter. The increase in manufacturing loans (7 trillion won) was driven by funding needs for corporate bond repayments, while service sector loans (14 trillion won) remained at a high level.Facility loans increased by 6.9 trillion won, a decrease from the previous quarter's increase of 9.4 trillion won. While service sector loans, particularly in real estate, saw an increase, manufacturing loans in sectors such as chemicals, medical products, and electronic components experienced a decline.By institution, the increase in loans from deposit banks rose from 25 trillion won in the previous quarter to 29.3 trillion won. In contrast, loans from non-bank deposit-taking institutions decreased from 5.8 trillion won to 1.3 trillion won during the same period.Among deposit bank loans, the increase in loans to large enterprises rose from 12.7 trillion won to 16.5 trillion won, while loans to small and medium-sized enterprises increased slightly from 10.1 trillion won to 10.3 trillion won. Loans to individual business owners decreased from 1.5 trillion won to 1.1 trillion won.Kim noted, "While there are differences by sector, overall, the trend of expanding corporate loans by banks continued in the second quarter, similar to the first quarter."Looking ahead, he stated, "The existing strategy of expanding productive finance is expected to continue for the time being, which will contribute to the increase in corporate loans. However, factors such as banks' risk management and sluggish local real estate markets may also limit actual loan growth, so we will need to monitor the situation closely."* This article has been translated by AI. 2026-09-07 12:04:20
  • Bank of Korea: 1% Rate Hike Increases Default Risk for Borrowers
    Bank of Korea: 1% Rate Hike Increases Default Risk for Borrowers Households that have heavily borrowed to purchase homes, known as 'young-gul' households, are particularly vulnerable to rising interest rates. An analysis indicates that if interest rates rise by 1 percentage point, the default probability for these households increases by 0.81 percentage points. Additionally, if one member of the household defaults, the likelihood of other members defaulting is nearly double that of existing homeowners.The Bank of Korea revealed these findings on September 7 in its issue note titled 'Household Debt Risk Assessment Using Household Database.' According to the central bank's stress test results, a 100 basis point (1 percentage point) increase in interest rates would raise the default probability for high-borrowing households by 0.81 percentage points.High-borrowing households are defined as the top 10% of households that experience the greatest increase in repayment burden relative to their income when purchasing homes. Considering that the actual default rate for existing homeowners was 2.01% at the end of 2025, this represents a significant increase.The potential for credit risk transfer within households is also high. In high-borrowing households, if one member defaults, the probability of another member defaulting within 12 months is 8.8%, compared to 4.6% for existing homeowners, indicating a 1.9-fold increase.Jang Hoon, head of the Financial and Monetary Research Division at the Bank of Korea, stated, "In high-borrowing households, the risk of credit issues spreading beyond the individual borrower to the entire household increases with rising interest rates. Although high-borrowing households only account for about 30% of the lowest income brackets, they experience shocks similar to those of low-income households."However, when considering all borrowing households, the impact of rising interest rates appears relatively limited. A 25 basis point increase in rates is projected to raise the household default rate from the current 3.35% by 0.27 percentage points. The Bank of Korea assessed that, overall, the default rate remains stable despite rising interest rates.Interest rate sensitivity is particularly pronounced among low-income households and self-employed individuals. The pre-rate increase default rates for the lowest income brackets (1st and 2nd) were 5.45% and 4.38%, respectively, exceeding the overall average of 3.35%. After 12 months following a rate increase, these rates are expected to rise by 0.48 and 0.40 percentage points, respectively. Self-employed individuals also had a pre-rate increase default rate of 4.47%, which increased by 0.32 percentage points after the rate hike.The issue of household debt constraining consumption has also been confirmed. A debt service ratio (DSR) exceeding 46% is associated with a decrease in consumption. As of 2025, it is estimated that 11.1% of households with debt had a DSR above this threshold.Notably, the debt repayment burden has increased among low-income households. The proportion of households in the lowest income bracket with a DSR exceeding 46% rose from 11.4% in 2021 to 14.5% in 2025. Lee Yoon-ha, head of the Household Debt Microstatistics Team at the Bank of Korea, noted, "The debt burden for low-income households is more significant when assessed at the household level rather than the individual level."The Bank of Korea emphasized the need for a household-level approach to assess and manage household debt risks, considering the income, assets, and debts of all household members. It highlighted the importance of being aware of the default risks associated with rising interest rates for high-borrowing households, the potential for credit risk transfer among household members, and the high debt repayment burdens faced by low-income households. 2026-09-07 12:04:20
  • Japan Enters 3% Long-Term Interest Rate Era Amid Fiscal Concerns
    Japan Enters 3% Long-Term Interest Rate Era Amid Fiscal Concerns "We have finally returned to a 'world with interest rates.' We need to change our budgeting approach. There are many areas that need adjustment." This statement from a Ministry of Finance official came after Japan's long-term interest rates surpassed 3% for the first time in 30 years on September 1. While a 3% long-term interest rate may not be shocking in South Korea, it is significant for Japan, which has been managing its finances under ultra-low interest rates while carrying a debt more than double its GDP. What does the return to a 3% interest rate mean for the Japanese government? ■ The Disappearance of Budget Surpluses The first change will be in budget management. According to the Nihon Keizai Shimbun (Nikkei), the Japanese government has been budgeting for bond interest costs at rates higher than market rates. If actual rates fall below these estimates, the surplus can be redirected to other policy areas, effectively used as a reserve fund. However, that surplus is now disappearing. The 3% rate recently surpassed the estimated interest rate the government had set for the 2026 budget. Market rates caught up with the high estimates set last December before the fiscal year even reached its midpoint. For the second consecutive year, market rates exceeded the estimated 2% for the 2025 fiscal year in December. In the budget request for 2027, the Ministry of Finance set the estimated interest rate for calculating bond costs at 3.8%, adding 1.1 percentage points to the then-current market rate. As long-term interest rates have risen to around 3%, there are discussions within the Ministry about raising this estimate to 4% when the budget is finalized at the end of the year. This would mean an increase in the estimated interest costs from 16.5888 trillion yen (approximately $143 billion). The total bond issuance requirement, including principal repayments, is 36.6386 trillion yen, already surpassing the 33.6872 trillion yen requested by the Ministry of Health, Labour and Welfare for social security costs. The Yomiuri Shimbun pointed out that rising interest costs are narrowing the government's policy options. The burden of interest payments will not end with the 2027 fiscal year. Rising rates accumulate over time as governments refinance maturing bonds with new issuances. Japan, having issued a large volume of bonds during the ultra-low interest period, will face significantly higher interest costs when these bonds are refinanced at higher rates. According to long-term projections released by the Ministry of Finance in April, even if the estimated interest rate remains lower than the 3.8% used for the 2027 budget request at 3.6% after 2029, interest costs could reach 35.9 trillion yen by 2035. If the 'risk scenario' materializes and rates rise to 4.6%, costs could soar to 45.2 trillion yen. The return to a 3% long-term interest rate has left a substantial future interest bill. ■ Warning Signs for the 'Growth Will Solve Debt' Calculation While the increase in interest costs is concerning, rising rates fundamentally challenge the Takaiichi government's aggressive fiscal policy. The primary fiscal balance indicates whether the government can manage policy spending without incurring new debt, excluding repayments of principal and interest on government bonds. Previous administrations aimed to achieve a surplus within a single fiscal year. In contrast, the Takaiichi government has effectively abandoned this goal, instead promoting a stable reduction in the debt-to-GDP ratio. The calculation is that if nominal growth, including inflation, exceeds the interest rates the government pays, the debt can increase while the GDP grows faster, thus lowering the debt ratio. This rationale underpins the aggressive fiscal policy aimed at increasing growth through investment. If interest rates catch up to or exceed growth rates, this calculation collapses. Masazumi Wakatabe, a former deputy governor of the Bank of Japan and an economic advisor to Prime Minister Takaiichi, argued until May that a declining debt ratio could justify a primary fiscal deficit. However, in July, he retreated, stating that the overall fiscal balance, including interest costs, must also be managed. This indicates that even proponents of aggressive fiscal policy are beginning to recognize the implications of rising rates. Shunsuke Kobayashi, chief economist at Mizuho Securities, predicted that due to inflation and the Bank of Japan's interest rate hikes, conditions in the early 2030s may not allow growth rates to exceed interest rates. This signals the end of the 'fiscal bonus' enjoyed during the era of ultra-low rates. Even if the strategy is maintained, market evaluations will begin immediately. If investors concerned about fiscal deterioration sell government bonds, the government will have to borrow at higher costs. The market has already begun scrutinizing the government's budget. With requests from various ministries for the 2027 budget reaching a record high of around 143 trillion yen, concerns about fiscal deterioration have resurfaced. This amount exceeds the initial budget for 2026 (122 trillion yen) by more than 20 trillion yen. Compared to the combined 140.6 trillion yen from the 2025 supplementary budget, this is not a drastic increase, but the Takaiichi government has not set limits on growth investments or provided funding solutions, leaving investors uneasy. As concerns about fiscal stability grow, the number of entities willing to purchase government bonds is decreasing. In the past, the Bank of Japan bought large quantities to suppress upward pressure on interest rates, but it has reduced its purchases. Foreign investors, who had been net buyers of ultra-long bonds for 15 consecutive months until March, sold off in April and June. Domestic financial institutions are also struggling to fill the gap. A Nikkei survey of major life insurance companies found that 13 firms reported domestic bond valuation losses of 30.869 trillion yen as of the end of June, a 60% increase over the past year. These firms are hesitant to buy, fearing that further rate increases will exacerbate their losses. Despite yields rising to 3%, buying interest remains low. A bond dealer from a foreign securities firm questioned, "In a situation where interest rates are rising due to fiscal concerns, who would buy government bonds?" If demand remains weak, the government will have to accept higher rates when issuing new bonds, creating a vicious cycle of increased interest costs and budget pressure. Prime Minister Takaiichi has stated that the government will manage the bond issuance amount appropriately without relying on deficit bonds for the expected 4.3 trillion yen decrease in tax revenue from food consumption tax cuts. The market views the ability to limit new bond issuance to around 40 trillion yen for 2027 as a critical test. Balancing tax cuts, growth investments, and increased defense spending while controlling bond issuance will be key in the year-end budget formulation. While a 3% long-term interest rate does not immediately plunge Japan into a fiscal crisis, the era of ultra-low rates that allowed for simultaneous support of multiple policies is over. The Nikkei has emphasized the need to maintain discipline in interest rates and carefully select projects that genuinely contribute to growth. Whether Japan can continue 'responsible aggressive fiscal policy' in this new 'world with interest rates' will depend on gaining the trust of the bond market.* This article has been translated by AI. 2026-09-07 12:04:10