juyeol lee : 68th anniversary of the bank of korea speech by mr juyeol lee, governor of the bank of korea, at the commemorating ceremony of the bank of korea's 68th anniversary, seoul, 12 june 2018. * * * dear fellow members of the bank of korea family! today is the 68th anniversary of the bank of korea ’ s establishment. taking this opportunity, i wish to express my sincere gratitude to our predecessors who devoted themselves to the development of the bank of korea and our economy, and to the many people who have supported and encouraged the bank. i would like to say in addition how much i appreciate the efforts of all members of our staff, who are faithfully fulfilling the duties entrusted to them in their positions. it is judged that the korean economy is sustaining its solid growth, as consumption and exports continue their favorable movements even though construction and facilities investment are going through adjustments. there are high uncertainties, due to the sluggish employment conditions as well as the financial unrest seen in some emerging market countries, but going forward the domestic economy is expected to grow at a pace that does not diverge greatly from the path forecast in april. however, there are still several structural problems in our economy, which are limiting the virtuous cycle between growth, employment, income and consumption. sluggish employment is a result not only of the delayed improvements in business conditions in some industries, but of structural factors such as the dual labor market structure as well. growth that depends heavily on specific sectors such as capital - and technology - intensive industries can result in weaker economic resilience to external shocks. household debt that grows more rapidly than household income can limit consumption through increases in borrowers ’ debt repayment burdens. i would like to emphasize once again that, when both the domestic and external economies are growing, structural reforms have to be carried out swiftly. during the structural reform process conflicts of interest among economic actors can of course arise. but if we postpone our efforts to resolve our economy ’ s structural vulnerabilities, then it is likely that we will face a much more severe situation in the medium to long term. the government will have to smoothly mediate the disputes among economic actors that can appear in the process of structural reform, and make efforts to ensure that any resulting negative effects can be minimized. fellow members of the bank of korea! i would like to talk now about some of the things that our bank of korea will have

thanks to the development of advanced financial techniques. this acted as an additional factor boosting household debt. assessment of the increase in household debt this great increase in household debt did bring positive effects to the macro economy, as well as household welfare and financial institutions business. the expanded borrowing opportunities of households helped to improve their qualities of life, by making life - cycle consumption - smoothing and house purchases easier. financial institutions were able to enjoy a wider range of profit opportunities, through household lending and through transactions in credit derivatives with household loans as the underlying assets. the total outstanding volume of credit derivatives worldwide is estimated to have swollen more than 110 times from 180 billion us dollars in 1997 to 20 trillion us dollars in 2006. in korea, the share of household lending in banks'total loans rose from 28 % in 1996 to 50 % in 2006. with corporate demand for funds greatly blunted after the 1997 financial crisis, korean banks instead increased their profit bases through household lending. this increased household lending helped to heighten housing market vitality, to stimulate consumption and to enhance banks'profitability. in these respects, it is evaluated as having contributed to the improvement of the macro economy in terms of the trends of business activities and of employment. having said this, however, i should point out that if household debt rises to an excessive level, there is a greater likelihood of households being unable to repay the principal and interest on their loans when interest rates rise or housing prices fall. this, of course, generates financial institution insolvency and financial market turmoil, which in turn has a negative impact on the real economy. this possibility has been dramatically demonstrated by the us sub - prime mortgage meltdown. in the case of the sub - prime mortgages, strict screening of borrowers'redemption capacities was often neglected at the time of loan extension. credit risk was then passed through to the financial system as a whole by way of mbss and cdos. for these reasons, when economic conditions weakened, it aggravated the seriousness of the problems of non - performing mortgages with corresponding severe impact on the financial market. in case of korea, however, there has been no signs of household debt turning sour so far, although it has increased very rapidly since the early 2000's. the delinquency rates on banks'household loans stood at only 0. 6 % at year - end 2007. future policy tasks in many countries, a large proportion of household debt is made up of housing finance loans. to maintain household debt