International credit rating agency Moody’s maintained a “stable” outlook, saying domestic banks are recovering thanks to the relatively rapid economic recovery in Korea.
However, the high level of Korean household debt and rapid growth rate could put a burden on bank credit risk in the mid- to long-term.
Moody’s said on December 12, “Korea’s household debt is at a high level of absolute growth and growth rate,” said Webina, a credit outlook for Korean governments and financial institutions. “If economic shocks or rapid interest rates rise, we can restrict the soundness of household loan assets.”
According to Moody’s, the ratio of household debt to Korea’s GDP exceeded 100% last year, followed by Switzerland, Australia, Denmark, Norway, Canada and the Netherlands. In particular, household debt growth in the second quarter of 2020 exceeded 10% compared to the end of 2016, the steepest among the 폰테크 comparative countries.
As the size of private loans such as households and companies increased significantly last year, the economic capital of the entire Korean banking sector weakened. In particular, the financial authorities are expected to end the grace period for loan repayment in September, so the ratio of insolvent loans (NPL) to banks will gradually increase from next year.
The fact that dividends, which were limited last year, normalized and dividend growth factors such as interim dividends since the second half of this year could continue to decline capital.
Moody’s warned that low interest rates and low non-interest income could lead to lower profitability for domestic banks and further cost increases for digitization. Expansion into overseas markets to compensate for profitability is also a potential credit risk.
However, thanks to the global economic recovery, the overall global banking sector is stable this year and Korean banks are also positively affected by the recovery of the Korean economy. This means that credit ratings are likely to return to ‘stable’ in the future.
Moody’s gives ratings to 17 commercial banks and policy banks in Korea, 14 of which give a ‘stable’ outlook and three local banks a ‘negative’ outlook.
In addition, bank bad debts will increase, but they have already accumulated a considerable amount of reserves, and they are expected to see a bigger return on reserves next year rather than deteriorating asset quality. The credit rating of household loan borrowers is also good, and the regulations of the authorities, such as strengthening the standard of total debt repayment ratio (DSR), are expected to ease related risks.
Meanwhile, Moody’s maintained its Korean credit rating to ‘Aa2’, which is the existing level, and its outlook to be ‘stable’.The Aa2 rating is the third highest rating system in Moody’s credit rating system, the highest level in Asia after Singapore