Bangkok--20 Oct--Standard & Poor's
Standard & Poor's Ratings Services today affirmed its foreign- and local-currency long-term sovereign credit ratings on the Republic of Korea at 'A' and 'A+', respectively. At the same time, we affirmed our foreign- and local-currency short-term credit ratings on Korea at 'A-1'. The outlook on the long-term ratings is stable.
"The sovereign credit ratings on Korea are supported by its dynamic economy, sound fiscal position, and sound external position," said Standard & Poor's credit analyst Kim Eng Tan of the Sovereign Ratings group.
In recent months, the Korean financial system has faced intensifying pressures. Due to the ongoing global liquidity squeeze, the nation's banks are facing increasing difficulty in refinancing their foreign currency requirements. The cost of wholesale funding has been rising, and the duration of the banks' foreign currency borrowing has been declining. Domestic funding conditions have also become more challenging during this period.
We expect the stress on the Korean financial system to be prolonged, and wholesale financing conditions are unlikely to normalize soon. The financial performance of Korean banks will likely be negatively affected by weak liquidity in domestic and international financial markets. And, as the global slowdown dampens economic growth in Korea, we expect the asset quality of the nation's banks to come under pressure. Derivative transactions conducted with small and midsize enterprises (SMEs) in Korea could represent another source of pressure for asset quality.
"Nevertheless, we anticipate that decisive policy measures will be put in place to ease domestic and foreign liquidity conditions," added Kim Eng Tan. "We expect the Korean government to have the financial capacity to implement measures of sufficient strength to limit deterioration in the banks' financial performance."
The stable outlook on the ratings on Korea reflects our expectations that the introduction of timely and appropriate policy measures will alleviate banks' funding pressures. This would prevent a marked deterioration of financial stability in the country despite current pressures. Conversely, failure to limit the damage to financial stability would likely hurt economic performance and the government's financial position. This could prompt us to lower the sovereign ratings.
A Korean-language version of this media release will be available via standardandpoors.co.kr or via Standard & Poor's CreditWire Korea on Bloomberg Professional at SPCK. Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.
Media Contact:
David Wargin, New York (1) 212-438-1579, [email protected]
Analyst Contacts:
KimEng Tan, Singapore (65) 6239-6350
Takahira Ogawa, Singapore (65) 6239-6342