South Korea Faces All Three IMF Financial Stability Risks

The International Monetary Fund (IMF) identified three major risks threatening the global financial market: AI-driven stock price corrections, rising government bond yields, and cyberattacks. South Korea has recently experienced these risks in succession. The IMF predicts that if AI investments fail to generate expected returns, AI-related stock prices could plummet.

Government bond yields may increase if inflation rates rise again or concerns over fiscal soundness grow. The interconnectedness of financial services digitally heightens the risk of hacking attacks on the financial system. South Korea's KOSPI stock market is highly sensitive to AI stock prices, making it the most affected among various stock markets.

The Bank of Korea raised interest rates twice in July and August, causing the yield on three-year government bonds to exceed 4% for the first time in two years. Cyberattacks have also plagued South Korea's financial sector, with 40 infringement incidents reported at 37 financial companies in early October, exposing sensitive customer information.

Concerns over AI data center regulations and the United States midterm elections have led to a significant drop in stock prices. The IMF recommends strengthening supervision over debt means, including retail investors' borrowing, to prevent forced liquidations. The Bank of Korea analyzed the impact of interest rate hikes on vulnerable borrowers, finding that the bank delinquency rate for these individuals rises nine months after the rate increase.

Authorities have taken various precautions, with the Bank of Korea conducting a stress test on securities firms and the Financial Services Commission planning to inspect over 580 financial companies for hacking risks. However, the IMF emphasizes that these risks may not threaten financial stability individually; if vulnerabilities amplify them, they could become systemic risks.