A top financial regulator on Monday urged banks to beef up their loss-absorbing capabilities and make efforts for better management of foreign liquidity amid rising uncertainty at home and abroad from global monetary tightening and a possible economic recession.

Lee Bok-hyun, chief of the Financial Supervisory Service (FSS), made the remark in his first meeting in Seoul with chiefs of major banks after taking office earlier this month.

"Current economic conditions are showing signs of a complex crisis in which risk factors are emerging simultaneously from the US Federal Reserve's steep rate increases, the protracted war in Ukraine and supply chain disruptions," Lee told the meeting.

"Indicators of banks' soundness remain good at the moment but they need to thoroughly brace for risk factors with a sense of urgency amid the possibility that a crisis could materialize from a protracted period of high interest rates and inflation," he added.

Lee, a former prosecutor, urged banks to do their utmost for better management of their asset soundness and foreign liquidity.

"First off, they should beef up loss-absorbing capabilities in preparation for credit-linked losses from economic shock," he said. "Given that foreign liquidity is directly related to sovereign credit ratings, it also should be thoroughly managed."

Lee said that the global economy is facing a growing possibility of stagflation, a mix of high inflation and slowing growth, and the Korean economy is under increasing downside risks with its stock, bond and currency markets recently going through heightening volatility.

With inflation and borrowing costs likely to mount further, he called on banks to brace for a spike in bad loans and delinquencies of debtors exposed to worsening economic conditions.

Lee added that banks need to consider rolling over maturing debts of such vulnerable people to allow repayment at lower rates or helping them with other measures to ease their financial burden. (Yonhap)