South Korea’s credit rating is anticipated to remain flat down the road despite the country’s rising public debts and household debts, Moody’s Investors Service Inc. said Thursday.
“While (South) Korea’s general government fiscal fundamentals remain strong, supporting its Aa3 rating and stable outlook, the rise in public-sector corporate debt and household debts are credit challenges,” said Tom Byrne, a Moody’s senior vice president and regional credit officer.
The remark came as South Korea’s household debt has surfaced as a major drag to the economy, crimping private consumption and hurting growth, with the outstanding amount reaching 961.6 trillion won as of the end of March.
The figure is equivalent to 89.2 percent of the country’s gross domestic product for 2011, much higher than the average 74.5 percent of the Organization for Economic Cooperation and Development.
“Nonetheless, Korea’s sovereign rating is further supported by the reduced external vulnerability of the banking sector since the onset of the global financial crisis in September 2008,” Byrne added.
Chris Park, vice president and senior credit officer, echoed this view, adding that local firms’ credit quality is expected to remain stable underpinned by supportive macro conditions.
South Korea logged a current account surplus for the 20th straight month in September to reach $6.57 billion, reflecting its healthy economic conditions. The current account is the broadest measure of cross-border trade.
Asia’s fourth-largest economy also grew at the fastest pace in more than two years in the third quarter on improving domestic demand and a pickup in facility investment, the central bank said last month. (Yonhap News)
South Korea‘s GDP, the broadest measure of economic performance, grew 1.1 percent in the July-September period from three months earlier, the bank’s data showed.
The global credit appraiser, meanwhile, added that risk-prone sectors, which include construction firms and shipbuilders, will continue to face a liquidity crisis down the road.
“The A-or-lower grade corporate bond market has been constrained by the defaults of the Woongjin, STX and Tongynag Groups, and credit and refinancing risks in the construction, shipping, shipbuilding and steel sectors. These four troubled industries have large maturing debt, a situation which is expected to continue into 2014,” said Moon Chang-ho, an official from the Korea Investors Service, a local affiliate of the credit appraiser.
Earlier this month, the credit appraiser announced it has retained its sovereign credit rating on South Korea at “Aa3,” citing the country‘s “strong” fiscal fundamentals and “moderate” debt burden.
“(South) Korea demonstrates strong fiscal fundamentals, as reflected in consistent budget surpluses, a moderate debt burden, one of the lowest gross financing needs of rated sovereigns, and low foreign-currency and external debt,” Moody’s said in an emailed press release.
The move came after Standard & Poor‘s and Fitch Ratings maintained their sovereign ratings for South Korea in September. (Yonhap News)
