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| A bank clerk receives a loan application from a small business owner facing difficulties from the coronavirus outbreak at a Shinhan Bank's Namdaemun branch in Seoul, Wednesday. / Yonhap |
By Park Jae-hyuk
Moody's Investors Service changed its outlook for Korea's banking system to negative from stable, while adjusting its outlook for the banking industry in 12 Asia-Pacific nations amid the coronavirus pandemic.
Local analysts warned Friday that the global credit rating agency's measure may have a negative impact on the entire domestic financial market, not only banks.
In a report issued Thursday, Moody's said disruptions related to the coronavirus outbreak will result in a significant slowdown in Korea's economic growth.
"Various fiscal and monetary policies introduced by the government will also increase Korean banks' asset-quality risk and strain banks' profitability. These challenges will outweigh the sector's currently ample capital and current low nonperforming loans ratio," Moody's senior credit officer of financial institution groups Sophia Lee said in the report.
"Even as the number of confirmed cases has stabilized in Korea, cautious sentiment and weak external demand will lead to a sharp contraction that may not be reversed until the end of this year. The government has introduced a broad range of measures aimed at alleviating repayment pressure of the most exposed borrowers, including loan support through policy and commercial banks."
Kiwoom Securities analyst Seo Young-soo said Moody's latest revision could also affect the Korean treasury bond market.
"From the perspective of those who arbitrage short-term treasury bonds, the adjustment means a rising counterparty risk. In Korea which has a bank-reliant financial system, this also means a destabilization of the entire system," he said in a report published Friday.
"The 2008 global financial crisis started as Fitch made a downward adjustment on its outlook for banks in July, and the crisis worsened as S&P and Moody's followed Fitch's adjustment in October."
