South Korea’s financial watchdog said Monday preparations are underway to deal with shrinking liquidity but the recent signs of credit strains are not a prelude to a full-blown crisis, such as the 1997 Asian financial crisis or the 2008 global financial crisis.

A default reported by a state-backed local developer in early October had led to signs of a decline in liquidity in the bond and short-term money markets, prompting the government to inject at least 50 trillion won ($35.8 billion) into the wider financial market. The developer building a Legoland theme park defaulted on 205 billion won in bond payments.

“Soaring interest rates globally and ample liquidity on the back of monetary easing for the last 10 years have to do with liquidity stress we’re seeing today,” Gov. Lee Bok-hyun of the Financial Supervisory Service told reporters in what many understood as a comment suggesting that the developer’s default was not “the impetus” that had rattled the local financial markets.

Higher borrowing costs -- backed by the Bank of Korea in line with a global push to tighter policy -- are increasingly forcing businesses and households to reset their spending priorities. But their dependence on “cheap money” delivered in the previous years on the back of looser policy has left them struggling.

But Lee said the local banking system’s strength is sound enough and that the banks can weather tightening financial conditions, though the won’s depreciation against the US dollar could pose a temporary challenge. Lee stressed that his agency would help them to manage any currency risks while putting banks with outstanding project finance loans for the real estate sector under greater scrutiny, in light of the recent default.

Household debt on the other hand has yet to reach the worrisome level, Lee added. The level -- standing at 104.3 percent of gross domestic product at the end of March, according to the Institute of International Finance -- is well within the range authorities see as manageable. But the IIF survey puts only Swiss and Canada ahead of Korea at 128.1 percent and 108.9 percent, respectively.

The top financial watchdog also addressed the latest credit strain concerns prompted by a local insurer that last week delayed buying back its perpetual notes, just a week before the maturity. The decision by Heungkuk Life Insurance to push back the redemption of dollar bonds worth $500 billion because of “unstable market conditions” worsened investor sentiment, amid regulators’ efforts to stem liquidity strains.

“I’d say we just take more time, wait and see what follows next,” Lee said, highlighting the company has resources to pay the debt. “We had been aware of the deadline approaching. But it’s a bit tricky for us to swoop in before the firm makes its decision.”