The cost of insuring South Korean lenders against default increased at a slower clip than global peers thanks to positive sovereign ratings, a report showed Tuesday.
Local banks saw their credit default swap premium rise by 80-90 basis points this year from the end of last year, compared with the 130-255 basis points of U.S. lenders and 120-210 basis points of French banks, according to a report by the Korea Center for International Finance.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A higher CDS mirrors increased concerns over a country’s sovereign credit. A basis point is 0.01 percentage point.
The state-run Export-Import Bank of Korea saw its CDS premium rise 76 percent from end-2010, while that of No. 3 banking group Shinhan Financial Group Co. gained 65 percent, the report showed.
The figures contrast with U.S. investment bank Goldman Sachs‘ 163 percent jump and French lender BNP Paribas’ 148 percent surge.
“Asian lenders have stayed relatively out of reach of the eurozone financial crisis. The fact that global credit rating agencies raised or sustained their ratings of South Korea also helped,” said Daniel Woo of KCIF.
Earlier this month, Standard & Poor‘s said it affirmed its sovereign credit rating for South Korea, citing the country’s fiscal soundness and its net external creditor position.
Fitch Ratings, meanwhile, upgraded its rating outlook for South Korea‘s sovereign debt to “positive” from “stable” last month, citing the country’s strong external liquidity and fast economic recovery. (Yonhap News)
