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| The Industrial Bank of Korea headquarters in Seoul. / Yonhap |
By Park Jae-hyuk
The Industrial Bank of Korea (IBK), Daegu Bank and Jeju Bank are among the lenders that will be most affected by the drop in domestic consumption and tourist arrivals following the spread of the novel coronavirus, according to Moody's Investors Service, Wednesday.
The global credit ratings agency said in a recent report that the outbreak of COVID-19 has the potential to disrupt several key Korean industries, which increases asset quality risk for the more exposed banks.
It said the epidemic will affect most adversely the credit quality of banks that have significant exposure to the service sector, such as accommodation, food services, transportation, wholesale and retail.
"Based on the rated banks' local currency loans, Jeju Bank, Daegu Bank and IBK have the highest exposure to these sectors," said Sophia Lee, Moody's Investors Service's senior credit officer, financial institution's group.
"Jeju Bank has the highest loan exposure to wholesale, retail, transportation, accommodation and food services, accounting for 27 percent of its loans as of September 2019. This is attributable to Jeju Bank having the highest market share on Jeju Island, with an economy mainly driven by tourism."
Jeju Bank is a provincial bank subsidiary of Shinhan Financial Group.
Moody's expects DGB Financial Group that owns Daegu Bank will suffer from its high exposure to small and medium enterprises (SMEs), which was 64 percent of its local currency loans at the end of last September, the highest among its commercial bank peers in Korea.
The state-run IBK is also vulnerable to the epidemic because of its high exposure to SMEs, which accounted for 79 percent of its total local currency loans, the ratings agency said.
Given that manufacturing is regarded as another area that will be affected because of its vulnerability to the contraction in trade and disruption to the supply chain, several other policy banks and regional banks are expected to face problems over their high exposure to the sector.
"The Export-Import Bank of Korea, the Korea Development Bank and IBK, the three major policy banks, have the highest exposures to manufacturing sectors, as their mandates include support for Korea's export sector," Lee said.
The analyst said the manufacturing industry downturn will also weigh on BNK Financial Group that owns Busan Bank and Kyongnam Bank, both of which are based in major manufacturing hubs and port cities.
According to Moody's, the regional banks have more than 20 percent of loans in manufacturing.
Earlier this month, S&P Global Ratings also said the global economic slowdown, led by the virus, would worsen the financial stability and profitability of Korean banks over the next few quarters.
