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Press Release: S&PGR Publishes Latest BICRA On Korea

10 Jul 2018 4:31 am
 
 
The following is a press release from S&P Global Ratings: 
 
HONG KONG (S&P Global Ratings) July 10, 2018--Korean banks are likely to 
sustainably manage their credit risks and maintain asset quality over the next 
two years amid our expectation of steady economic growth. That is according to 
the report, titled "Banking Industry Country Risk Assessment: Korea," that S&P 
Global Ratings published today. 
 
We expect Korean banks' profitability to remain largely stable at levels seen 
in 2017. This is because continuing improvements in net interest margins amid 
rising interest rates will likely offset some upward pressure on credit costs. 
Banks' risk management has been strengthening, with the industrywide 
nonperforming loans ratio at about 1.2% as of March 2018, down from about 1.4% 
a year ago. Korean banks' return on assets also rose to about 0.5% in 2017, 
from 0.1% a year ago, helped by a reduction in credit costs. 
 
In our view, the risk of a sharp correction in property prices in Korea is low 
considering stable credit growth and real estate prices in real terms compared 
with Asia-Pacific countries such as Hong Kong and Australia. 
 
However, high household leverage could threaten the banking system, 
particularly if interest rates surge or household income suddenly drops. We 
expect banks' tightened underwriting standards along with proactive regulatory 
measures to mitigate such risks. The regulators have tightened the 
loan-to-value (LTV) and the debt-to-income (DTI) ratio requirements for Seoul 
and key satellite cities in 2017. The authorities are also considering various 
property-tax initiatives targeting owners of multiple houses. These include 
the heavier capital gain tax imposed earlier this year and a plan for higher 
property holding taxes. We estimate household debt will grow by about 5% 
year-over-year in the next few years, down from about 8% in 2017 and 10% in 
2016. 
 
In our opinion, a stable and sizable proportion of customer deposits supports 
systemwide funding in Korea's banking sector. This is despite some dependence 
on wholesale foreign-currency funding. Korean banks have improved their 
foreign-currency funding and liquidity by increasing the average tenor and 
securing more liquid foreign-currency assets, especially compared to 2008, 
when these banks experienced a foreign-currency liquidity crunch. 
 
We believe the stability of the banking system would benefit from steady 
regulatory actions to tackle potential risks associated with foreign-currency 
funding by banks and high household debt, as well as improving mortgage loan 
structures with more fixed-rate and amortizing installment-type mortgages. 
 
Korea remains in our Banking Industry Country Risk Assessment (BICRA) group 
'3' along with countries such as Australia, Chile, France, and the U.K. A 
BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking 
systems (group 1) to the highest-risk (group 10). 
 
RELATED CRITERIA AND RESEARCH 
 
Related Criteria 
     -- Banking Industry Country Risk Assessment Methodology, Nov. 9, 2011 
 
Related Research 
     -- A Korean Detente Would Take Time To Pay Dividends, June 12, 2018 
     -- Solid 2017 Results Keep Korean Major Commercial Banks On A Firm 
Performance Path, Feb. 12, 2018 
     -- Korea's Banking Sector Will Preserve Its Creditworthiness Unless 
Burdened by High Household Debt and Bail-In, Jan. 23, 2018 
     -- The North Korean Threat Will Linger For A Long Time, Nov. 29, 2017 
     -- Republic of Korea 'AA/A-1+' Ratings Affirmed; Outlook Stable, Aug. 18, 
2017 
 
A Korean-language version of this media release is available via 
standardandpoors.co.kr or via S&P Global CreditWire Korea on Bloomberg 
Professional at SPCK <GO>. Complete ratings information is available to 
subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by 
this rating action can be found on S&P Global Ratings' public website at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column. 
 
Primary Credit Analyst: HongTaik Chung, CFA, Hong Kong (852) 2533 3597; 
                        hongtaik.chung@spglobal.com 
Secondary Contacts: Daehyun Kim, CFA, Hong Kong +  852 2533 3508; 
                    daehyun.kim@spglobal.com 
                    Scott Han, CFA, Hong Kong +  852 2532 8022; 
                    Scott.Han@spglobal.com 
                    Emily Yi, Hong Kong +  852 2532 8091; 
                    emily.yi@spglobal.com 
Sovereign Analyst: YeeFarn Phua, Singapore (65) 6239-6341; 
                   yeefarn.phua@spglobal.com 
 
 
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July 10, 2018 00:31 ET (04:31 GMT)
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