Koo vows swift support plan for vulnerable borrowers as long-term rates hit decades-high

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said Friday that the government would soon announce a support package for vulnerable borrowers to ease the financial burden on small business owners and low-income households.

Koo convened a market situation review meeting — known as the F4 meeting — at the Korea Federation of Banks building in Seoul on Friday, with Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Governor Lee Chan-jin and Bank of Korea Assistant Governor Park Jong-woo in attendance, to discuss financial and foreign exchange market conditions and the government's response.

Koo said long-term government bond yields in major economies including the United States, Japan and Europe had climbed to their highest levels in decades, driven by expanded fiscal spending by various governments and ongoing uncertainty in the Middle East. He added that South Korea's own bond market was also seeing yields rise, particularly at the ultra-long end of the curve.

The yield on the US 30-year Treasury rose from 4.61 percent in late February to 5.19 percent on Wednesday, while Japan's equivalent moved from 3.34 percent to 4.09 percent and the UK's from 5.03 percent to 5.79 percent over the same period. The government attributed the global rise in long-term yields to a combination of factors: increased government bond issuance across countries, a surge in corporate bond issuance by global AI companies, and continued uncertainty over the situation in the Middle East.

In response, the government said it would conduct regular monitoring of domestic bond market conditions and the issuance and distribution of government bonds, while also tracking how rising long-term rates affect borrowing costs for businesses and households and their broader impact on the real economy.

Officials said rising interest rates were adding to the debt burden accumulated by households and the self-employed during the COVID-19 recovery period. Koo said the government would support the rehabilitation of struggling small business owners and individuals through expanded debt restructuring, while also broadening financial support for small and medium-sized enterprises and vulnerable borrowers.

On the foreign exchange front, officials noted that the won-dollar rate — which had risen to the 1,550-won range in early July — fell back into the 1,300-won range on Wednesday for the first time in 11 months, helped by a record current account surplus and a moderation in foreign investors' equity rebalancing.

However, the government said it would remain vigilant and continue to respond to market volatility, given that both upward and downward pressures on the exchange rate persist, including geopolitical tensions in the Middle East and monetary policy decisions by major central banks.

Net external financial assets at the end of the second quarter fell sharply to $64 billion from $753.6 billion the previous quarter. The government attributed the decline to a significant rise in the value of domestic equities held by foreign investors, driven by improved corporate earnings and higher share prices.

Koo said net external claims — which directly reflect the country's capacity to meet external obligations — stood at $367.8 billion, up $2.3 billion from the previous quarter. "The first-half current account surplus also reached a record $191 billion, so there is no doubt that South Korea's external financial soundness is more solid than ever," he said.

The government will also continue managing household debt. Household credit recently surpassed 2,000 trillion won ($1.44 trillion), but the ratio of household debt to GDP has declined from 89.1 percent in the first quarter of last year to 88.1 percent in the fourth quarter and further to 85.3 percent in the first quarter of this year. The government said it would maintain oversight given that the ratio remains elevated compared with many other major economies, while ensuring that genuine end-users face no difficulty accessing financing.

Supplementary measures targeting single-stock leveraged products will also continue. Trading volume in such products fell from 12.4 trillion won on July 30 — the day before the measures took effect — to 3.2 trillion won on the day they were introduced, and further to 1.1 trillion won on Thursday, roughly one-tenth of the pre-measure level. The government said the concentration of demand was easing and pledged to press ahead with the existing supplementary measures alongside broader efforts to improve the structural health of capital markets.

Koo said the high degree of uncertainty in external conditions called for a more vigilant response than ever. "We will activate an integrated management system covering the financial, foreign exchange, government bond and real estate markets to proactively identify sector-specific risk factors and respond in a timely manner when needed," he said.