Moody's retains credit rating on Korea at 'Aa3'

Global rating agency Moody's Investors Service said Wednesday it has kept the sovereign credit rating on South Korea at "Aa3," as the country's strong fiscal fundamentals are forecast to offset unfavorable external conditions.

"Korea's fiscal fundamentals remain very strong, supporting its Aa3 government bond rating," Moody's Vice President Steffen Dyck said in a media briefing in Seoul.

The global credit appraiser has kept its current rating for Korea at its fourth-highest level since August 2012.

"The positive outlook ... is supported by ongoing regulatory and market reforms aimed at ensuring financial stability, strengthening competitiveness and addressing external vulnerabilities," Dyck noted.

The agency, however, warned that slowing export momentum and consumer confidence could hinder economic growth further, putting the country's growth outlook for 2016 at 2.5 percent.

"Diminished export momentum and recent shocks to consumer confidence, as well as rising household debt and demographic change, pose challenges for the country's near- and long-term growth perspectives," the senior analyst said. "The most immediate issue is the slowdown in China."

South Korea's central bank last month trimmed the growth outlook for next year to 3.2 percent from 3.3 percent as weak domestic demand and unfavorable external factors are forecast to weigh down the local economy.

Moody's expected most private-sector companies to maintain their current ratings through 2016 thanks to their robust earnings, though the steel and retail sectors are likely to continue to experience a hard time.

"Historically low interest rates in Korea will keep the funding environment supportive of them," said Chris Park, Moody's associate managing director, adding that earnings stability and low capital expenditures will buttress their financial leverage.

The key risk to the stable outlooks, however, is "a significant slowdown in China's GDP growth, which will have adverse impacts on the credit quality of the firms in the refining, chemical, steel and auto sectors," Park said. (Yonhap)