By Choi Sung-jin



Four out of 10 financial experts, local and foreign, say Korea's financial system will likely run into a crisis over the next three years, a survey shows.



As potential risk factors that can cause such a crisis, the experts cited China's economic slowdown, swelling corporate liabilities, household debt and the fixation of the low-growth, low-inflation trend, it says.



The Bank of Korea surveyed 78 financial and economic experts on systemic risks, from April 6-20. To a multiple-reply question asking about the most dangerous factors, 73 percent pointed to China's economic slowing, followed by rising possibilities of corporate insolvency (59 percent), household debt (54 percent) and low growth and low inflation becoming permanent (51 percent).



As the risks most likely to be materialized, however, the respondents cited the advent of a low growth-low inflation era and aggravation of corporate financial health. With respect to influence on the financial system, they cited, in order, household debt, China's business slowdown and corporate financial ailments.



The survey results were different from those of last October, the central bank said. For instance, risks caused by U.S. interest rate hikes sharply fell, from 72 percent to 38 percent, while the share of respondents citing corporate insolvency soared from 32 percent to 59 percent. Those who pointed to China's economic slowing and household debt also declined from 90 percent and 62 percent, respectively, to 73 percent and 54 percent.



"These changes in replies seem to reflect the aggravating profitability of domestic businesses amid the global economic setback and sluggish demand, as well as the ongoing restructuring of troubled industries, including the shipping and shipbuilding sectors," the central bank's report said.



Among the total 78 respondents from 68 financial service companies, 20 are working at Korean banks, 16 are with non-banking financial firms, 32 are investors in stock, bond and derivatives markets, and 10 are foreigners at international institutions who invest in Korean markets.



By the financial institutions in which the respondents work, 80 percent of experts working at Korean banks cited China's economic slowdown as the major risk, followed by corporate insolvency (75 percent), household debt (60 percent) and fixation of low growth and low inflation (60 percent).



On the other hand, 88 percent of those at non-banking financial firms pointed to household debt while 90 percent of foreign respondents cited China's economic slowing.



Asked whether they think risks will occur to the financial system within a year, 49 percent said such possibilities are low, far more than the 15 percent who saw such chances as high. To the question of similar risks between one and three years from now, 40 percent said such chances are high while only 19 percent replied the possibilities are low. With respect to their confidence in the stability of the financial system over the next three years, 53 percent answered it would be at average level, 33 percent replied it would be high and 14 percent said it would be low.



This indicates the experts think the occurrence of short-term risks within a year have fallen compared with last October, but the mid-term risks over the next one to three years have risen, the BOK report said.



