{
  "title": "Republic of Korea: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis, Financial Sector Stress Testing, and an Assessment of Demographic Shift in Korea",
  "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-systemic-risk-49755",
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  "summary": "This note presents the systemic risk analysis conducted for the Republic of Korea in the course of the 2019 Korea FSAP. It comprises a forward-looking solvency analysis for banks, insurers, and pension funds, a liquidity stress test for banks, and an assessment of network and interconnectedness for",
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    {
      "heading": "Scope and analytical framework",
      "content": "- Presents the systemic risk analysis conducted for the Republic of Korea in the course of the 2019 Korea FSAP.\n- Analytical components:\n  - Forward-looking solvency analysis for banks, insurers, and pension funds.\n  - Liquidity stress test for banks.\n  - Assessment of network and interconnectedness across a wide range of financial sector entities and their ties to the real economy.\n- Structural features informing the analysis:\n  - Korea’s strong export orientation and limited diversification.\n  - Korea’s role as a node in regional and international supply chains.\n  - Rapid growth of the financial system: it has grown by 40 percentage points of GDP since 2013.\n  - Widespread use of mortgage insurance schemes—reflected in the bank risk assessment.\n  - Large, highly concentrated, and saturated life and non-life insurance sector.\n  - Accelerating fintech developments, including the Open Banking system and e-money providers.\n  - Adverse demographic developments among the most adverse world-wide, implying continuous drag on demand, downward pressure on interest rates, financial firms’ income, and capitalization unless business models are altered."
    },
    {
      "heading": "Key findings and risk channels",
      "content": "- Banking sector:\n  - Forward-looking solvency and liquidity vulnerabilities assessed through solvency analysis and liquidity stress testing.\n  - Mortgage insurance schemes materially affect bank risk exposures and loss absorption mechanics.\n- Insurance and pension sectors:\n  - Life and non-life insurance sector characterized as large, highly concentrated, and saturated.\n  - Pension funds included in forward-looking solvency assessments to capture demographic and market risks.\n- Systemic interconnectedness:\n  - Network analysis covers a wide range of financial entities and their linkages to the real economy, reflecting Korea’s integration in regional and global supply chains.\n- Macroeconomic and structural drivers of financial risk:\n  - Export dependence and limited diversification heighten exposure to external shocks.\n  - Demographic deterioration constrains domestic demand, exerts downward pressure on interest rates, and weakens financial firms’ income and capitalization prospects.\n- Fintech and market structure:\n  - Rapid fintech development (Open Banking, e-money) changes market dynamics and risk transmission channels."
    },
    {
      "heading": "Implications for policy and financial stability",
      "content": "- Need for deep, forward-looking analysis given financial system growth of 40 percentage points of GDP since 2013.\n- Supervision and regulation should account for:\n  - The role of mortgage insurance schemes in bank risk profiles.\n  - Concentration and saturation in the insurance sector.\n  - Interconnectedness across banks, insurers, pension funds, and nonbank financial institutions.\n- Strategic responses to demographic pressures:\n  - Financial firms may need to alter business models to sustain income and capitalization amid downward pressure on interest rates and demand.\n- Monitoring fintech developments:\n  - Supervision and regulatory frameworks should adapt to Open Banking and e-money provider expansion to mitigate new operational and market risks."
    },
    {
      "heading": "Key statistics and publication metadata",
      "content": "- Financial system growth: 40 percentage points of GDP since 2013.\n- Pages: 100\n- Volume: 2020\n- Issue: 279\n- DOI: https://doi.org/10.5089/9781513557052.002\n- Stock No: 1KOREA2020006\n- ISBN: 9781513557052\n- ISSN: 1934-7685\n\nRepublic of Korea: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis, Financial Sector Stress Testing, and an Assessment of Demographic Shift in Korea, IMF Staff Country Reports (September 18, 2020).\n\n---\n\n Content in this bundle\n\n- 1korea2020006\n  - 1korea2020006 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1korea2020006 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: September 18, 2020",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9781513557052.002",
    "Presents the systemic risk analysis conducted for the Republic of Korea in the course of the 2019 Korea FSAP.",
    "Analytical components:",
    "Structural features informing the analysis:",
    "Systemic interconnectedness:",
    "Macroeconomic and structural drivers of financial risk:",
    "Fintech and market structure:",
    "Need for deep, forward-looking analysis given financial system growth of 40 percentage points of GDP since 2013.",
    "Supervision and regulation should account for:",
    "Strategic responses to demographic pressures:",
    "Monitoring fintech developments:",
    "Financial system growth: 40 percentage points of GDP since 2013.",
    "Pages: 100",
    "Volume: 2020",
    "Issue: 279",
    "DOI: https://doi.org/10.5089/9781513557052.002",
    "Stock No: 1KOREA2020006",
    "ISBN: 9781513557052",
    "ISSN: 1934-7685",
    "**1korea2020006**"
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