{
  "title": "Republic of Korea: Financial Sector Assessment Program-Technical Note-Non-Financial Balance Sheet Vulnerabilities and Risks to Financial Stability",
  "publication": "IMF Staff Country Reports, September 18, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2020/09/18/republic-of-korea-financial-sector-assessment-program-technical-note-non-financial-balance-49750",
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  "summary": "Non-Financial Corporate Sector. Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP.",
  "sections": [
    {
      "heading": "Non-Financial Corporate Sector — summary findings",
      "content": "- Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP.\n- The stock of non-corporate debt has become slightly more resilient due to the deleveraging of non-conglomerate affiliated firms.\n- Average firm performance has remained resilient for conglomerate-affiliated corporates but weakened for all other firms.\n- Despite the low interest rate environment, around one-quarter of total corporate debt (around 28 percent of GDP) is registered ‘at-risk’.\n- Over half of non-financial corporate debt-at-risk resides with SMEs, posing risks to banks' balance sheets."
    },
    {
      "heading": "Stress test results and vulnerabilities",
      "content": "- Characteristics associated with higher likelihood of debt-servicing difficulties:\n  - firms which are more indebted,\n  - less profitable firms,\n  - smaller firms,\n  - firms with lower turnover.\n- Interest rate and profit shock scenario:\n  - Corporate balance sheets are vulnerable to a sudden hike in interest rates, which combined with a profit shock, could double the amount of debt-at-risk held by non-SME firms.\n- Exchange rate shocks:\n  - Exchange rate shocks appear manageable given low FX debt and natural FX hedges.\n- Quantified stress outcomes:\n  - Under a downside macro-financial stress test scenario, non-SME credit losses would total a touch over 2 percent of GDP.\n  - Bank stress tests suggest that the maximum cumulative bank losses from distressed SME loans in a stress scenario would total around 2 percent of GDP.\n  - Together, these losses would be broadly manageable for the financial system to absorb."
    },
    {
      "heading": "Key statistics and numeric indicators",
      "content": "- Leverage: around 100 percent of GDP (non-financial corporate leverage, stable since 2013).\n- Debt-at-risk: around one-quarter of total corporate debt (around 28 percent of GDP).\n- Non-SME credit losses in downside stress: a touch over 2 percent of GDP.\n- Maximum cumulative bank losses from distressed SME loans in stress: around 2 percent of GDP."
    },
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      "heading": "Thematic coverage (subjects and keywords)",
      "content": "- Subjects: Debt service, External debt, Financial sector policy and analysis, Financial statements, Housing prices, National accounts, Personal income, Prices, Public financial management (PFM), Stress testing\n- Keywords: capital structure, CR, Debt service, Financial statements, Global, household balance sheet resilience, household balance sheet vulnerability, household balance sheets, household debt, Housing prices, ISCR, leverage ratio, market mis-valuation, Personal income, return on assets, Stress testing\n\nRepublic of Korea: Financial Sector Assessment Program-Technical Note-Non-Financial Balance Sheet Vulnerabilities and Risks to Financial Stability\n\n---\n\n Content in this bundle\n\n- 1korea2020005\n  - 1korea2020005 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1korea2020005 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: September 18, 2020",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9781513557045.002",
    "Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP.",
    "The stock of non-corporate debt has become slightly more resilient due to the deleveraging of non-conglomerate affiliated firms.",
    "Average firm performance has remained resilient for conglomerate-affiliated corporates but weakened for all other firms.",
    "Despite the low interest rate environment, around one-quarter of total corporate debt (around 28 percent of GDP) is registered ‘at-risk’.",
    "Over half of non-financial corporate debt-at-risk resides with SMEs, posing risks to banks' balance sheets.",
    "Characteristics associated with higher likelihood of debt-servicing difficulties:",
    "Interest rate and profit shock scenario:",
    "Exchange rate shocks:",
    "Quantified stress outcomes:",
    "Leverage: around 100 percent of GDP (non-financial corporate leverage, stable since 2013).",
    "Debt-at-risk: around one-quarter of total corporate debt (around 28 percent of GDP).",
    "Non-SME credit losses in downside stress: a touch over 2 percent of GDP.",
    "Maximum cumulative bank losses from distressed SME loans in stress: around 2 percent of GDP.",
    "Subjects: Debt service, External debt, Financial sector policy and analysis, Financial statements, Housing prices, National accounts, Personal income, Prices, Public financial management (PFM), Stress testing",
    "Keywords: capital structure, CR, Debt service, Financial statements, Global, household balance sheet resilience, household balance sheet vulnerability, household balance sheets, household debt, Housing prices, ISCR, leverage ratio, market mis-valuation, Personal income, return on assets, Stress testing",
    "**1korea2020005**"
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