Moody's downgrades South Korea banking to 'negative'

[SEOUL] Ratings agency Moody's on Monday downgraded its outlook for South Korea's banking system from stable to negative, predicting a deterioration in creditworthiness over the next year.

"While our previous stable outlook had anticipated some weakening of profitability and pressure on asset quality, the operating environment for banks is deteriorating amid Korea's diminished growth outlook and ongoing corporate sector restructuring," sais Sophia Lee, Moody's vice president and senior credit officer.

The agency's report assumed economic growth of 2.5 per cent in 2016 - the slowest rate since 2012 - with external demand remaining weak.

The report said government efforts to address burning issues like high household debt would trigger policy measures that "negatively affect" the banks' profitability and asset quality.

Collective household debt in South Korea stood at a record high of close to a trillion dollars at the end of December.

The fact that inflation is currently running well below government targets leaves room for further interest rate cuts by the Bank of Korea - a move that could further depress lending margins, Moody's said.

The central bank's key interest rate currently stands at a record-equalling low of 1.5 per cent.

AFP