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Lee Chan-jin Attends Asia-Pacific Financial Supervisors Meeting to Discuss AI and Supply Chain Risks Lee Chan-jin, the head of the Financial Supervisory Service, participated in an international conference attended by financial supervisors and central bank governors from the East Asia and Pacific region, where discussions focused on the adoption of artificial intelligence (AI) in the financial sector and strategies to address global supply chain risks. He also discussed ways to enhance cooperation in the financial industry with Indonesias Financial Services Authority (OJK).According to the Financial Supervisory Service, Lee attended the 15th East Asia and Pacific Financial Supervisors and Central Bank Governors Meeting (EMEAP GHOS) held in Singapore on July 23-24.EMEAP is a cooperative body established in 1991 for financial supervisory agencies and central banks from 11 countries in the East Asia and Pacific region to facilitate mutual cooperation and information exchange. The meeting was hosted by the Monetary Authority of Singapore (MAS).Participants discussed key issues related to the supervisory and management challenges posed by the expanded adoption of AI in the financial sector, as well as the risks to supply chains arising from recent global environmental changes and potential responses.During the meeting, Lee also held a separate bilateral meeting with OJK Chairperson, Friderika Widiya Sari Dewi. The two sides exchanged views on expanding exchanges and cooperation between the financial industries of South Korea and Indonesia, emphasizing the need to strengthen collaboration in financial supervision and enhance mutual information sharing.* This article has been translated by AI. July 26, 2026 12:04 -
Global Inflation Concerns Rise as Oil Prices Hit $100 and U.S. Imposes New Tariffs As international oil prices surpassed $100 per barrel, the United States has imposed new tariffs on key trading partners, reigniting global inflation concerns. Rising oil prices are increasing production and transportation costs, while U.S. tariffs could elevate the prices of imported goods. This situation raises the possibility that central banks in major economies may delay interest rate cuts or consider further hikes.Brent Crude Surpasses $100 Amid Middle East Shipping ConcernsOn July 23, Brent crude for September delivery closed at $100.69 per barrel, a 7.04% increase, marking the first time it has exceeded $100 since May 22. West Texas Intermediate (WTI) also rose by 6.17%, finishing at $92.19 per barrel. Both oil benchmarks have seen gains for five consecutive trading days.Concerns over potential disruptions in oil transportation due to military conflicts in the Middle East have driven prices higher. The ongoing U.S.-Iran tensions have significantly reduced shipping traffic through the Strait of Hormuz, while Yemens Iran-aligned Houthi group reported attacks on two Saudi oil tankers in the Red Sea.If both the Strait of Hormuz and the Bab el-Mandeb Strait are blocked, two major oil transport routes from the Middle East would be simultaneously threatened. Goldman Sachs has projected that if disruptions in the Strait of Hormuz persist, Brent crude could exceed $120 per barrel in the fourth quarter of this year. They also noted that if the Bab el-Mandeb Strait and the Suez Canal experience disruptions, prices could rise further.The surge in oil prices has also impacted the global bond market. With rising energy costs potentially driving inflation higher, concerns have grown that central banks may need to maintain elevated interest rates for longer or implement additional hikes, leading to a rise in government bond yields across major economies.The yield on the U.S. 10-year Treasury note rose to 4.703% on July 23 and climbed to 4.7135% during Asian trading on July 24, the highest level in 18 months. Germanys 10-year bond yield reached 3.205%, the highest since 2011, while the U.K.s 10-year yield rose to 5.096%, marking a two-month high.U.S. Imposes New Tariffs on 60 Countries, Including South KoreaAdditionally, the U.S. has introduced a new tariff policy that could further increase inflationary pressures. The Office of the U.S. Trade Representative (USTR) announced on July 24 that it would impose tariffs of 10-12.5% on 60 trading partners, including South Korea, under Section 301 of the Trade Act. These countries account for 99.4% of total U.S. imports.The application of tariffs varies by country. For South Korea, Japan, and Switzerland, the combined tariff rate of the existing most-favored-nation (MFN) tariff and the new tariff will be set at a minimum of 12.5%. If the existing rate is below 12.5%, the additional tariff will be adjusted accordingly; if it is already above 12.5%, no new tariff will be applied.The same method will apply to the European Union and Taiwan, but the combined tariff rate will be set at 10%. In contrast, 17 countries, including the U.K., Canada, India, and Mexico, will see an additional 10% tariff added to existing rates, while the remaining countries will face a 12.5% additional tariff.The new tariffs took effect at 12:01 a.m. Eastern Time on July 24. Notably, crude oil, key petroleum products, natural gas, and some fertilizer materials are excluded from this tariff list.Market analysts believe that high oil prices will increase global energy and transportation costs, while the new tariffs will pressure the prices of imported goods entering the U.S., contributing to inflationary burdens in different ways.The decisions of major central banks regarding interest rates have also become more complicated. The European Central Bank (ECB) held its deposit rate steady at 2.25% on July 23, cautioning that the impact of rising energy prices on inflation has not yet fully materialized. If oil prices continue to rise, there are discussions about the ECB potentially raising rates further.The Federal Reserve and the Bank of England are also expected to keep rates unchanged at their upcoming monetary policy meetings next week. However, if oil prices continue to climb, the possibility of additional rate hikes cannot be ruled out.According to Reuters, financial markets estimate about a one-third chance that the Fed will raise rates next week, with expectations for two rate hikes by January 2024 already priced in.* This article has been translated by AI. July 24, 2026 15:56
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Finance chief raises growth outlook as South Korea nears $40,000 per-capita income SEOUL, July 24 (AJP) - Deputy Prime Minister and Finance Minister Koo Yun-cheol said Friday that stronger-than-expected economic growth has put South Korea on track for annual growth of around 3 percent and per-capita income of US$40,000, although many households have yet to feel the effects of the stronger economy. The finance chief said the economy had sustained its growth momentum after a robust first quarter. "The likelihood of achieving 3 percent annual growth and per-capita national income of $40,000 this year has increased significantly," Koo said at a meeting in Seoul. He then pledged to advance the government's so-called "3-4-5 vision," which targets potential growth of 3 percent, a place among the world's four largest exporters and per-capita income of $50,000. South Korea's gross domestic product expanded 0.6 percent in the second quarter from the previous three months and 3.7 percent from a year earlier, according to preliminary data released by the Bank of Korea (BOK). Growth slowed from the first quarter's 1.8 percent pace but remained firm as semiconductor-led exports and private consumption offset continued weakness in construction. Exports increased 1.4 percent from the previous quarter and private consumption rose 0.4 percent, while construction investment declined 0.2 percent. Real gross domestic income, which reflects changes in purchasing power caused by shifts in trade prices, rose 3.6 percent from the previous quarter and 15.6 percent from a year earlier. Koo also pledged to contain inflation as renewed tensions in the Middle East threaten to raise oil prices and disrupt supply chains. The government will extend fuel-tax reductions through the end of September and maintain restrictions against the hoarding of urea and urea solution through August. It will ease inventory and sales restrictions on syringes and needles as supplies improve and introduce legislation next month to strengthen penalties for hoarding and allow confiscated goods to be released into the market. Despite the stronger headline figures, annual growth of 3 percent would not necessarily indicate robust momentum through the second half. The BOK has said the economy could still grow 3 percent this year even if GDP contracted by an average of 0.1 percent in each of the third and fourth quarters, reflecting the unusually strong expansion already recorded in the first half. Construction weakness and an uneven recovery outside the semiconductor industry therefore remain potential drags even if the annual target is reached. The prospect of per-capita gross national income reaching $40,000 is also heavily dependent on the exchange rate. Per-capita GNI rose 4.6 percent in won terms last year but increased only 0.3 percent in dollar terms to $36,855 as the currency weakened. Crossing the $40,000 threshold this year would require an increase of about 8.5 percent in dollar terms, meaning continued won weakness could offset growth in domestic nominal income. The central bank said in March that, assuming no exchange-rate effect and annual GNI growth of 4.4 percent, the average since 2014, South Korea would surpass $40,000 in 2027 rather than this year. Even reaching the threshold would not necessarily translate into comparable gains for middle- and lower-income households because GNI includes income earned by companies and the government and divides the total by the population. Average monthly household income rose 2.4 percent from a year earlier in the first quarter but increased only 0.4 percent after inflation, while earned income grew just 0.3 percent in nominal terms. Disposable income increased 2.7 percent, but consumption spending climbed 5.3 percent, reducing the average household surplus by 3.1 percent. Income-distribution indicators also deteriorated in 2024, with the Gini coefficient rising to 0.325 and the income ratio between the richest and poorest fifths widening to 5.78. The relative poverty rate, which measures the share of people living on less than half the median income, rose 0.4 percentage point to 15.3 percent. Annual growth of 3 percent and per-capita GNI of $40,000 would mark significant milestones for the size of the Korean economy, but broader improvements in living standards will depend on whether export and corporate income spreads into wages and household disposable income. July 24, 2026 14:34 -
Large $1.7 billion international money transfer completed in one hour via China's payment network A large international money transfer worth 1.7 billion dollars was completed in just one hour through Chinas payment network. According to the South China Morning Post on July 24, the Bank of China processed a remittance of 1.7 billion dollars (approximately 2.5 trillion won) through its Shenzhen branch using mBridge, the international payment platform of the Peoples Bank of China. This month, a larger amount was reported to have been transferred to the Bank of Chinas Fujian branch from overseas. The July transaction was the largest in terms of value among those using mBridge. The June transaction involved a Chinese corporate client sending money to an overseas corporate client, while the July transfer was made by an overseas remitter to a corporate account in mainland China. The transfer took less than 60 minutes to complete. China launched mBridge, a digital payment platform based on blockchain technology, in 2021. A key feature of mBridge is that it does not go through the international payment network SWIFT. Central banks from various countries join mBridge to settle transactions using central bank digital currencies, allowing financial institutions to conduct cross-border remittances. This system differs from the Cross-Border Interbank Payment System (CIPS), which China established in 2015 to facilitate international transactions in yuan. CIPS uses existing banking payment systems for international yuan payments and settlements and also utilizes the SWIFT system. Market analysts view mBridge as a crucial tool for China to reduce geopolitical risks and decrease reliance on the dollar-centric international payment network. A recent report from the Japan Research Institute described mBridge as a project designed to establish a mechanism for continuing yuan-denominated payments amid rising geopolitical tensions and economic sanctions. French investment bank Natixis stated, As the use cases for mBridge increase, the platforms maturity will grow, and in the long term, it could establish itself as an alternative payment network to SWIFT while supporting the internationalization of the yuan.* This article has been translated by AI. July 24, 2026 13:40
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Second Quarter GDP Shows Unexpected Growth, Signaling Potential Rate Hike South Koreas economy continued its unexpected growth in the second quarter, increasing the likelihood of an additional interest rate hike by the Bank of Korea. If the consumer price index for July, set to be released next month, remains high, expectations for a consecutive rate increase in August will strengthen.According to the Bank of Korea on July 23, the real gross domestic product (GDP) grew by 0.6% in the second quarter compared to the previous quarter. This figure significantly exceeds the central banks forecast of 0.2% made in May. After recording a growth rate of -0.1% in the fourth quarter of last year, the economy rebounded with a growth of 1.8% in the first quarter and maintained a solid trajectory in the second quarter.The quality of growth has also improved. The real gross domestic income (GDI) rose by 3.6% from the previous quarter and by 15.6% year-on-year. The gap between the GDP growth rate and the GDI growth rate widened to 11.9 percentage points, the largest since the Bank began tracking these statistics in 1960.Lee Dong-won, head of the Bank of Koreas Economic Statistics Division, stated, The increase in real purchasing power due to changes in relative prices of exports and imports was greater than the increase in production. The improvement in real GDI can lead to increased corporate investment and household purchasing power, which may positively impact domestic demand in the future.As a result, the possibility of the annual growth rate exceeding 3% has increased. Market analysts are also revising their growth forecasts upward. Ha Geon-hyung, an economist at Shinhan Investment Corp., noted, Reflecting the strong semiconductor market in the first half and the potential for domestic demand expansion in the second half, we are raising our growth forecast for this year from 3.1% to 3.3%.The stronger-than-expected growth is also raising the possibility of further interest rate hikes by the Bank of Korea. With the growth rate significantly exceeding expectations and the expansion of real GDI confirming the potential for improved corporate investment and household purchasing power, the justification for maintaining a tightening stance has been strengthened.Earlier, Bank of Korea Governor Lee Ju-yeol indicated on July 16, after raising the benchmark interest rate to 2.75%, that he would assess the possibility of an August consecutive hike based on the second quarter GDP and GDI figures and the July consumer price inflation rate. There are expectations in the market that the previously anticipated timing for an additional rate hike in October could be moved up to August.Kim Jin-wook, an economist at Citibank Korea, remarked, Considering the stronger-than-expected GDP and GDI, there is a high likelihood of a 0.25 percentage point increase in the benchmark interest rate at the August Monetary Policy Committee meeting. Both growth and inflation are moving in a direction that supports the Bank of Koreas tightening stance.Market attention is now focused on the July consumer price index. While there are forecasts that inflation may slow, the ongoing rise in energy prices due to instability in the Middle East could prolong inflationary pressures longer than expected. The consumer price inflation rates were recorded at 3.1% in May and 3.2% in June, marking two consecutive months above 3%. If the July consumer price inflation rate exceeds market expectations, the likelihood of the Bank of Korea implementing consecutive interest rate hikes will increase further.* This article has been translated by AI. July 23, 2026 18:32
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Won surges amid foreign inflows as stronger-than-expected GDP SEOUL, July 23 (AJP) - The South Korean won strengthened sharply against the dollar on Thursday as foreign investors poured more than 2 trillion won into local shares following stronger-than-expected economic growth and renewed optimism over artificial intelligence-related chip demand. Government bond yields, by contrast, ended little changed as the prospect of further monetary tightening was offset by buying interest after their recent climb. The won gained 13.3 won to close daytime trading at 1,466.8 per dollar, its strongest level in about two and a half months. The currency opened near 1,477 per dollar and briefly weakened before reversing direction and advancing into the mid-1,460s later in the session. Foreign investors purchased a net 2.136 trillion won (US$1.46 billion) of shares on the main Kospi market, adding to demand for the won and accelerating the currency's rise. The benchmark KOSPI climbed 4.40 percent to 7,096.89 as overseas investors concentrated their purchases in large-cap stocks, including semiconductor companies. The scale of foreign buying strengthened expectations of equity-related dollar selling, while exporters also sold dollars as the exchange rate extended its decline. The market rally followed data showing that South Korea's real gross domestic product expanded 0.6 percent in the second quarter from the previous three months, exceeding the 0.4 percent median forecast in a Reuters poll. The economy grew 3.7 percent from a year earlier, also beating expectations, as exports increased 1.4 percent on strong shipments of semiconductors, machinery and equipment. The figures eased concern that economic momentum would fade sharply after 1.8 percent growth in the first quarter and reinforced expectations that the Bank of Korea will raise its annual growth forecast next month. They also strengthened the case for at least one more interest-rate increase, improving the won's relative yield outlook despite continued strength in the broader dollar. Renewed optimism over global artificial intelligence (AI)-related investment provided additional support, lifting South Korean chipmakers and drawing foreign funds back into a market that had recently experienced sharp volatility. Government bonds showed a much more restrained response to the GDP surprise, with yields ending on opposite sides of their previous closes. The yield on the three-year government bond rose 0.4 basis point to 3.917 percent, while the benchmark 10-year yield declined 0.8 basis point to 4.392 percent. The stronger growth figures kept expectations for another BOK rate increase intact, but the possibility had already been largely reflected in short-term yields after their recent advance. The central bank raised its benchmark interest rate by 25 basis points to 2.75 percent on July 16, and economists broadly expect at least one additional increase to 3.00 percent by the end of the year. Buying interest emerged as the three-year yield approached 3.9 percent and the 10-year yield neared 4.4 percent, limiting further losses in bond prices despite the stronger-than-expected GDP data. The decline in the longer-dated yield slightly flattened the yield curve, indicating that investors were reluctant to extend the bond sell-off without clearer evidence that stronger growth would generate persistent inflation. Thursday's trading highlighted a divergence across South Korean financial markets, with the won and equities responding strongly to foreign inflows and the chip-led growth surprise while bonds remained caught between additional rate-hike risks and perceptions that yields were near a short-term peak. July 23, 2026 17:12 -
Korean growth runs above potential of 2% H1 on AI chip boon SEOUL, July 23 (AJP) - South Korea's economy cooled in the second quarter from the blistering pace of the previous three months, but stayed comfortably above its estimated growth potential and on track to achieve the government's annual growth target of 3.0 percent, Bank of Korea data showed Thursday. Gross domestic product expanded 0.6 percent in the April-June period after expanding 1.8 percent in the first quarter. The Bank of Korea portrayed the moderation as a healthy normalization rather than the start of a slowdown. "When growth is exceptionally strong in one quarter, it often falls sharply or even turns negative in the next, but the economy continued to expand in the second quarter," said Lee Dong-won, director general of the BOK's Economic Statistics Department II. From a year earlier, GDP grew 3.7 percent in the second quarter after a 3.8 percent increase in the January-March period, keeping the broader expansion comfortably above the economy's estimated growth potential of around 2 percent. "Even if quarter-on-quarter growth averages minus 0.1 percent in the third and fourth quarters, annual growth could still reach 3 percent," Lee said. Annual growth compares the average level of GDP over all four quarters of 2026 with the average for 2025, rather than simply adding quarterly growth rates. The strong gains already accumulated in the first half would therefore cushion modest weakness later in the year. The BOK's latest official growth forecast, released in May, remains at 2.6 percent, making Lee's 3 percent figure an arithmetic possibility rather than a revised central bank projection. The central bank will update its outlook in August. If achieved, 3 percent growth would mark South Korea's strongest annual expansion in five years. Financial markets took the stronger-than-expected GDP figures in stride. The benchmark KOSPI rose 3.2 percent to 7,012 as of 11 a.m., extending gains as investors welcomed signs of economic resilience. The three-year Korean government bond yield was little changed at 3.909 percent, hovering just below the 4.0 percent threshold, while the 10-year yield rose 2.3 basis points to 4.377 percent. The stronger growth figures reinforced expectations that the Bank of Korea could tilt toward a more aggressive pace of monetary tightening. The Korean won, which opened at around 1,476.6 won per dollar at about 9 a.m., strengthened sharply to around 1,468 after the data release. Another upside surprise was that the composition of second-quarter growth suggested momentum was not confined entirely to exports. Domestic demand and net exports each contributed 0.3 percentage point to quarterly growth, contrary to expectations that external demand would account for most of the increase. Still, stronger exports and chip-facility expansion remained the primary growth engines. Private consumption remained lackluster, hovering around zero growth. Higher oil prices weighed on passenger-car fuel consumption, but discretionary spending increased on household appliances, department-store goods, clothing, bags and travel, supported by income gains from the stock market and the AI boon. Beyond the stock market and the semiconductor sector, domestic demand remained broadly subdued, with elevated household debt continuing to weigh on consumer spending. The AI-driven chip boon, however, boosted the economy's income far more than its output. Real gross domestic income rose 15.6 percent from a year earlier, its strongest annual gain in 38 years, as semiconductor export prices increased much faster than crude oil import prices. The widening gap between GDP and GDI indicated that the purchasing power generated by the economy rose much faster than real output, reflecting a sharp improvement in South Korea's terms of trade. Officials cautioned that more evidence was needed to determine whether the income windfall would feed through to corporate investment, employment and broader household consumption. The second-quarter figures therefore suggest that while the economy likely passed its quarterly growth peak in the first three months of the year, the broader expansion has held up better than expected. Yet the figures also point to an increasingly two-speed economy, with the AI-driven chip boom generating outsized gains in national income while much of the domestic economy continues to struggle under weak consumption, sluggish private demand and elevated household debt. The second-half trajectory will depend on developments in the Middle East, energy prices and whether the semiconductor upswing broadens beyond favorable pricing into sustained gains in production, exports, investment and domestic demand. July 23, 2026 11:21 -
KB Kookmin Bank and NH Nonghyup Bank Join Deposit Token Payment Infrastructure Expansion Project KB Kookmin Bank and NH Nonghyup Bank have been selected as participants in the Ministry of Science and ICT and the Korea Internet & Security Agencys Deposit Token Payment Infrastructure Expansion Project, the banks announced on July 23.This initiative is a private consortium led by the Financial Settlement Agency, in collaboration with the Ministry of Economy and Finance and the Bank of Korea. The goal is to implement a private payment infrastructure that allows citizens to use deposit tokens based on the central bank digital currency (CBDC) verified through the Bank of Koreas Project Han River.KB Kookmin Bank will support merchants in accepting deposit token payments without the need for replacing terminals or overhauling systems by utilizing its existing payment network.The settlement period, which previously took 1 to 3 days, is expected to be shortened to an immediate settlement level, thereby reducing the payment processing fees for small businesses. Additionally, the bank plans to co-develop key technologies such as deposit token wallet integration, security solutions, and smart contract verification with small and medium-sized enterprises and startups in the blockchain and IT sectors.NH Nonghyup Bank will collaborate with the Financial Settlement Agency consortium to implement QR code-based payment services and promote the expansion of deposit token payments using existing payment infrastructure. The bank intends to leverage the experience gained from this project to broaden its application in the public sector in conjunction with the Ministry of Economy and Finances treasury management policies.* This article has been translated by AI. July 23, 2026 11:00
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Major Banks Raise Deposit Rates to 3% Following Central Bank Hike In response to the Bank of Koreas interest rate hike, the five major banks in South Korea—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—have all raised their deposit rates.According to the financial sector on July 23, Hana Bank has increased the interest rate on its flagship one-year time deposit product, Hana Time Deposit, from 2.90% to 3.20%, a rise of 0.30 percentage points.NH Nonghyup Bank also raised the rate on its main product, NH All-in-One e-Deposit (one-year maturity), from 2.95% to 3.25%. The interest rates for various savings products were increased by 0.25 to 0.30 percentage points, and rates for subscription deposits and special savings were each raised by 0.25 percentage points.An official from the banking sector stated, We adjusted the deposit rates to reflect the Bank of Koreas interest rate hike and market conditions.Following increases by Shinhan, KB Kookmin, and Woori banks, both Hana and NH Nonghyup have now raised their deposit rates, resulting in all five major banks offering one-year time deposit rates at or above 3%.Previously, Shinhan Bank raised the interest rate on its Sole Comfortable Time Deposit from 2.90% to 3.20% starting July 21. KB Kookmin Bank followed suit on July 22, increasing the rate on its KB Star Time Deposit from 2.90% to 3.20%. Woori Bank had raised rates on its key savings products by 0.25 to 0.30 percentage points on July 20, with the maximum rate for its flagship WON Plus Deposit increasing from 2.90% to 3.20%.As banks continue to raise deposit rates, funds are increasingly flowing into these institutions. As of July 15, the total balance of time deposits at the five major banks reached 965.29 trillion won, an increase of 15.89 trillion won from the end of last month, which stood at 949.40 trillion won.* This article has been translated by AI. July 23, 2026 10:04
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Google's Strong Performance Eases AI Investment Concerns, Driving Down Won-Dollar Exchange Rate The exchange rate between the South Korean won and the U.S. dollar is declining as concerns over artificial intelligence (AI) investments ease following Googles strong performance.As of 9:45 a.m. in the Seoul foreign exchange market, the won is trading at 1,473.2 won per dollar.The exchange rate opened at 1,477.5 won, down 2.6 won from the previous days closing price, and has continued to decline.Google reported results that exceeded market expectations and raised its annual capital expenditure (CAPEX) forecast, alleviating concerns about reduced AI investments. The uncertainty surrounding the profitability and scale of AI investments, which had recently been cited as a reason for the weakness in semiconductor stocks, has improved, boosting global risk appetite.As a result, foreign net buying is expected to flow into the domestic stock market, particularly in Samsung Electronics and SK Hynix. The increase in offshore custody dollar sales during the foreign stock buying process is likely to exert downward pressure on the won-dollar exchange rate.However, geopolitical tensions in the Middle East are supporting the lower end of the exchange rate. On July 22, U.S. forces conducted additional airstrikes against Iran. Both sides have warned of potential attacks on civilian infrastructure, raising tensions once again.Min Kyung-won, an economist at Woori Bank, stated, The recovery of risk appetite due to Googles strong performance, along with the custody volume from foreign net buying and the chasing sales from exporters, will support the strength of the won. If the European Central Bank (ECB) monetary policy meeting tonight is interpreted as hawkish, it could lead to euro strength and dollar weakness, adding further downward pressure on the exchange rate.* This article has been translated by AI. July 23, 2026 10:00
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Bond Yields Rise Following Rate Hike, Increasing Loan Costs in Second Half Government bond yields in South Korea continue to rise, reflecting the Bank of Koreas shift to a tightening cycle and expectations for further interest rate hikes. This increase is expected to push loan interest rates into a significant upward trend in the second half of the year. As the central bank raises rates and the government maintains its stance on managing household debt, the financial burden on borrowers is likely to grow.According to the Korea Financial Investment Association, the yield on three-year government bonds closed at 3.867% on July 21, up 93.2 basis points from the end of last year (2.935%). Similarly, the yield on ten-year government bonds rose from 3.385% to 4.328%, an increase of 94.3 basis points during the same period.This rise in government bond yields has been driven by geopolitical risks in the Middle East, inflation concerns, and expectations of interest rate hikes. Notably, the Bank of Korea raised its benchmark rate from 2.50% to 2.75% on July 16 and hinted at the possibility of further increases, intensifying upward pressure on bond yields.The increase in market interest rates raises banks funding costs, which in turn leads to higher loan interest rates. For instance, the yield on one-year bank bonds (AAA, unsecured) rose from 2.816% at the end of last year to 3.737% recently, an increase of 92.1 basis points. The one-year bank bond yield is a key indicator of banks short-term funding costs, and rising costs can exert upward pressure on loan reference rates such as the COFIX.The key reference rate for mixed-rate (fixed-rate) mortgage loans, the five-year bank bond yield, also increased from 3.495% at the end of last year to 4.480%, while the three-year bank bond yield rose from 3.205% to 4.258%, a jump of 105.3 basis points.Loan interest rates are showing signs of rising again. According to the Bank of Korea, the interest rate on new household loans from deposit banks fell from 4.51% in March to 4.43% in April but rebounded to 4.46% in May. As market interest rates continue to rise and the benchmark rate is increased, upward pressure on loan interest rates is expected to intensify.In this context, the burden on borrowers is anticipated to increase. As of the end of May, the proportion of variable-rate loans among household loans was 75.4%, with variable-rate mortgages making up 58.4%. Variable-rate loans are structured to reflect changes in reference rates like COFIX relatively quickly, meaning that if the trend of rising benchmark rates continues, borrowers with variable rates are likely to face increased interest burdens.It is also expected that banks will raise their lending thresholds. The Bank of Korea indicated that the comprehensive index of banks lending attitudes is projected to drop to -7 in the third quarter, down from -1 in the first quarter and -2 in the second quarter. A negative lending attitude index indicates a tightening of lending criteria. The index for household mortgage loans is expected to be -14, while the index for general household loans is projected at -11, with household credit risk remaining high. The Bank of Korea analyzed that the deterioration of repayment capacity among vulnerable borrowers and the governments household debt management policy will influence banks tightening of lending standards.As loan interest rates rise and lending criteria tighten, the demand for funds among borrowers is expected to persist, while the conditions for securing funds will become increasingly challenging. The survey indicated that despite the tightening of lending standards, demand for credit loans for living expenses and stock market investments is expected to continue. In contrast, housing-related loans are projected to decline due to increased regulations and rising interest rates.Market analysts believe that the upward trend in bond yields will likely continue for the time being due to the shift to a tightening cycle. Hana Securities stated that if the second-quarter economic growth rate hovers around 0.4% compared to the previous quarter, there is a strong possibility that the Bank of Korea will implement consecutive interest rate hikes in August. Park Jun-woo, a researcher at Hana Securities, noted, If expectations for further interest rate hikes persist, the yields on three-year and ten-year government bonds by the end of the year could rise to levels 10 to 20 basis points higher than the previous forecasts of 4.0% and 4.3%, respectively.* This article has been translated by AI. July 21, 2026 18:48
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Interest Rate Hikes Raise Concerns for Vulnerable Borrowers 한국은행이 기준금리 인상 기조로 전환한 데 이어 하반기 추가 금리 인상 가능성까지 높아지면서 저소득·저신용 차주를 중심으로 이자 부담이 확대될 것이라는 우려가 커지고 있다. 코로나19 이후 취약 부문의 부실이 충분히 해소되지 않은 상황에서 대출금리 상승이 이어지면 상환 부담이 한층 커질 수 있다는 분석이다.According to the Bank of Korea, the delinquency rate for household loans rose to 1.00% in the first quarter of this year, up from 0.92% in the fourth quarter of last year. While the overall delinquency rate remains within long-term averages, the central bank has noted signs of deteriorating financial health among vulnerable borrowers.The proportion of vulnerable borrowers, defined as low-income and low-credit households and self-employed individuals, increased from 6.4% at the end of the third quarter of last year to 6.7% at the end of the first quarter of this year. These borrowers, who typically have low income and credit scores and often hold debts from multiple financial institutions, are expected to be most affected by rising interest rates.Market analysts believe there is a high likelihood that the Bank of Korea will raise the benchmark interest rate at least once more this year. As the benchmark rate increases, it will eventually be reflected in loan rates, further increasing the repayment burden for vulnerable borrowers.In fact, rising interest rates directly lead to increased interest burdens for borrowers. According to data submitted by the Bank of Korea to lawmaker Lee Jong-wook of the People Power Party, a 0.25 percentage point increase in mortgage rates is estimated to raise the annual interest burden for all borrowers by approximately 1.8 trillion won. This translates to an additional burden of about 296,000 won per borrower annually. If further rate hikes occur, the interest burden could increase even more.The burden on vulnerable groups is already evident in statistics. According to the National Data Agencys household trend survey, the average monthly interest cost for all households in the first quarter of this year was 136,515 won, a 6.6% increase from the same period last year. In contrast, the interest costs for the lowest income 20% of households rose by 23.9% during the same period, more than three times the overall average increase. This indicates that the impact of rising interest rates is disproportionately affecting low-income households.Experts warn that if the tightening of monetary policy continues for an extended period, the repayment capacity of vulnerable borrowers could deteriorate rapidly. If income growth does not keep pace with rising interest burdens, delinquencies may increase, which could also pose risks to the financial sectors stability.Kim Sang-bong, a professor of economics at Hansung University, stated, Market interest rates are already at a high level. If the benchmark rate is raised two more times, the repayment burden for vulnerable borrowers could increase sharply.* This article has been translated by AI. July 21, 2026 18:48
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BOK to plug 24-hour won settlement gap in latest MSCI push SEOUL, July 21 (AJP) - South Korea will pilot a round-the-clock international won payment network in September, seeking to fill a key settlement gap in its newly opened 24-hour foreign exchange market and strengthen its bid for developed-market status from MSCI. The Bank of Korea said Tuesday it had formally named the planned offshore settlement system the Bank of Korea Won International Wire Network, or BOK-WireInt. The network will allow foreign investors and financial institutions to complete won payments during their own business hours, regardless of the time difference with Seoul. KB Kookmin Bank, Woori Bank, Hana Bank and Shinhan Bank will participate in the initial trial, with the central bank and the four lenders currently conducting system tests. The BOK plans to complete the introduction and revision of related payment-system regulations by August. BOK-WireInt will run for 24 hours on business days, from 9 a.m. to 9 a.m. the following day, excluding weekends and public holidays. The system is intended to give overseas investors continuous access not only to won trading but also to the infrastructure needed to settle and manage the funds. South Korea moved its domestic foreign exchange market to 24-hour trading on July 6 as part of a broader drive to improve overseas access to the won. The change enabled investors to trade spot won-dollar and foreign exchange swap products during London and New York hours, but the expansion also increased the need for a payment network capable of supporting transactions beyond conventional domestic operating hours. The new network is designed to provide that missing link, allowing foreign institutions to complete won settlements during their local market hours rather than waiting for systems in Seoul to reopen. The BOK said the change should improve the convenience of using and managing won funds and widen foreign access to the country’s settlement infrastructure. The central bank also expects the project to contribute positively to South Korea’s efforts to join MSCI’s developed-market index. Restrictions surrounding offshore won trading and settlement have long been among the market-access issues facing South Korea, which remains classified as an emerging market by the global index provider. The September pilot will test whether the new network can support stable 24-hour settlements before participation is expanded more broadly. The won strengthened 5.0 won to close at 1,473.4 per dollar at 3:30 p.m. Tuesday - supported by the Bank of Korea’s July 16 rate increase and expectations that proceeds from SK Hynix’s U.S. ADR offering will add to dollar supply in the domestic foreign exchange market. July 21, 2026 16:23 -
Chip boom puts BOK on tightening path, but spillover debate clouds outlook SEOUL, July 21 (AJP) - South Korea's bond market is increasingly pricing in another interest-rate increase this year after the Bank of Korea's July hike, as Governor Shin Hyun-song argues that the country's chip-driven income boom is beginning to generate demand-side inflation despite a still-sluggish domestic economy. Investors now widely expect the benchmark policy rate to reach 3.0 percent by year-end after the central bank last week raised it by 25 basis points to 2.75 percent, its first increase since January 2023. Some analysts see the next move coming as early as the Aug. 28 policy meeting. "We are seeing an exceptional condition. The gross domestic product has grown 3.8 percent (from a year earlier) in the first quarter whereas the gross domestic income grew much greater at 13.2 percent," Shin said after the July 16 monetary policy meeting. "We have to see if this is a temporary phenomenon or one that could have a big impact on the economy." Shin said the divergence suggested the economy may be entering a new phase in which income growth, fueled by soaring export prices, begins to feed domestic demand. "If income improvement continues at this kind of strength, we may have to be wary of inflationary pressure from the demand side," he said. Markets have already begun positioning for that possibility. The benchmark 10-year Korean government bond yield climbed to an annual high of 4.365 percent by midday Tuesday, up from an average of 4.252 percent in June and 3.612 percent in February before the outbreak of the Iran conflict. Shin has also indicated that the latest rate increase marks the beginning of a broader tightening cycle. Alongside imported inflation stemming from elevated energy prices and a weaker won, he has increasingly pointed to domestic pressures, including faster wage gains linked to the AI boom. The government's recent decision to raise its 2026 economic growth forecast to 3.0 percent — the strongest pace since 2021 — has reinforced that narrative. Semiconductor exports have powered much of the recovery, with outbound shipments reaching $551.3 billion as of July 20, keeping the country on course to touch the $1 trillion mark for the first time. Government officials and the central bank argue that the current semiconductor cycle differs fundamentally from previous booms. Unlike earlier upcycles, they contend, the AI-driven surge is generating unprecedented corporate earnings that are flowing into wages, shareholder income, investment and tax revenues, creating a broader economic impact. The BOK maintains that stronger semiconductor earnings will gradually spread through investment, household income and consumption while lifting corporate and earned-income tax receipts. Shin has rejected the view that the benefits will remain confined to a handful of chipmakers, although he acknowledged much of the fiscal windfall will become visible next year. The central bank strengthened that argument in an Issue Note released Sunday, saying the latest improvement in Korea's terms of trade could have a more durable effect on domestic demand because it stems from structural AI-related semiconductor demand and higher export prices rather than temporary declines in oil prices. According to the report, previous improvements in the terms of trade often reflected cheaper imported energy, which boosted purchasing power but faded as commodity prices recovered. This time, however, higher export prices driven by AI memory chips may sustain income gains for longer, encouraging consumption and business investment. Yet evidence that the semiconductor windfall is spreading across the broader economy remains mixed. Retail sales, construction activity and many service industries have recovered only gradually despite record exports and surging corporate earnings. Corporate data also point to a disconnect between profits and employment. Employment at 282 of Korea's 500 largest companies rose just 0.2 percent over the past three years even as sales increased 10.9 percent and operating profit jumped 81.0 percent, according to corporate tracker Leaders Index. The contrast is even sharper in the semiconductor-heavy IT, electrical and electronics sector. Sales climbed 34.4 percent and operating profit surged 2,740.5 percent, yet employment increased by only 1,727 workers, or 0.6 percent. The BOK itself acknowledges many of those limitations. Its report noted that IT manufacturing accounts for only 2.6 percent of business-sector employment, limiting the direct transmission of semiconductor gains into household income. It also said most wage increases and equity gains accrue to high-income households with relatively low propensities to consume. Investment spillovers may also prove weaker than headline figures suggest. Roughly 60 percent of semiconductor manufacturing equipment is imported, while Korean chipmakers have increasingly expanded production overseas, reducing the domestic impact of capital spending. Persistent weakness in construction, retail, smaller manufacturers and other non-IT industries could further dilute the benefits from the export boom. By contrast, the pressures supporting tighter monetary policy are already visible. The won remains one of Asia's weakest major currencies. Shin has repeatedly argued that the Korea-U.S. interest-rate gap deserves close attention because cheaper won funding can encourage carry trades into dollar assets and increase hedging costs for overseas investments, reinforcing depreciation pressure. Following last week's policy meeting, he said the BOK is closely monitoring offshore non-deliverable forward markets and is preparing additional research on how changes in the interest-rate differential affect currency flows. Even after the July rate increase, Korea's benchmark rate remains 1 percentage point below the upper end of the U.S. Federal Reserve's 3.50-3.75 percent target range. Currency weakness has also offset part of the income gains generated by stronger exports. While Taiwan has benefited from the same AI-driven semiconductor cycle, the Korean won has fallen about 13 percent against the U.S. dollar since the end of 2023, compared with roughly 5 percent for the Taiwan dollar. That depreciation has continued to raise import costs for energy, food and raw materials, with Shin noting that import prices remain around 20 percent higher than a year earlier. Meanwhile, financial stability concerns continue to build. Housing prices have accelerated across Seoul and much of Gyeonggi Province, while household lending has continued expanding by roughly 8 trillion won to 9 trillion won a month despite tighter lending regulations. Those pressures complicate the policy outlook. The immediate beneficiaries of the semiconductor boom remain concentrated among large exporters, shareholders and highly paid technology workers, while higher borrowing costs are felt much more broadly by indebted households, small-business owners, builders and smaller manufacturers. Shin has argued that such distributional issues should be addressed through targeted fiscal and financial policies rather than monetary policy, allowing interest rates to focus primarily on inflation and financial stability. For markets, the debate is no longer whether semiconductors are lifting Korea's national income — they clearly are. The more important question is whether those gains will spread widely enough through wages, consumption and investment to justify a sustained tightening cycle before the broader domestic economy fully recovers. That question is likely to shape not only the Bank of Korea's next rate decision, but also how investors judge the durability of Korea's AI-driven economic resurgence in the months ahead. July 21, 2026 15:13 -
BOK governor joins Asia-Pacific policymakers amid AI and inflation risks SEOUL, July 21 (AJP) -Bank of Korea Governor Shin Hyun-song will join Asia-Pacific central bankers and financial regulators in Singapore this week for talks on inflation, financial stability and the economic risks posed by intensifying artificial intelligence competition and escalating tensions in the Gulf. Shin will attend the 31st Executives' Meeting of East Asia-Pacific Central Banks (EMEAP) Governors and a separate gathering of central bank governors and financial supervisory chiefs from Wednesday through Friday, the BOK said Tuesday. The discussions come as policymakers assess how the rapid adoption of AI is reshaping economic structures while creating new challenges for financial stability, regulation and monetary policy. Shin and fellow EMEAP governors will exchange views on recent economic developments and examine the implications of AI for regional economies and financial systems. They will also review the work of the group's committees on monetary and financial stability, financial markets, payment and settlement systems, banking supervision, information technology and financial institution resolution. At the separate meeting with financial supervisors, participants will focus on how banks and other financial institutions are deploying AI and the regulatory challenges arising from its broader adoption. Officials will also discuss the macroeconomic and financial implications of supply chain disruptions and possible policy responses. Founded in 1991, EMEAP comprises the central banks and monetary authorities of 11 East Asia-Pacific economies, including South Korea, China, Japan, Australia, Singapore and Hong Kong. Financial regulators from South Korea, China, Japan, Australia and Indonesia will also participate in the joint meeting of central bank governors and supervisory authorities. Shin is scheduled to depart for Singapore on Wednesday and return to South Korea on Saturday. July 21, 2026 13:00