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Announcement:

Moody's: Korean banking system's funding and liquidity profile remains stable

 The document has been translated in other languages

21 Aug 2014

Hong Kong, August 21, 2014 -- Moody's Investors Service says that it expects the Korean banking system's funding structure and liquidity metrics to continue to improve for the coming 12 months, as the authorities retain their conservative stance and guard against potential liquidity shocks.

"However, coming improvements to the Korean banking system's funding and liquidity could be limited, as the banks already have sufficient funding, and holding additional liquidity significantly above current levels would result in downward pressure on profitability," says Jeffrey Lee, a Moody's Associate Analyst.

Lee was speaking on the release of a new Moody's report, entitled "Funding and Liquidity Profile for Korean Banking System Remains Stable".

According to the Moody's report, commercial banks' KRW loan-to-deposit ratio stabilized at 96.2% at end-March 2014, below the regulator's cap of 100%.

Further, the KRW liquidity ratio -- defined as KRW liquid assets due within one month divided by KRW liquid liability due within one month -- climbed to a seven-quarter high of 132%, which suggests that banks are well positioned to meet their short-term KRW liabilities.

Korean banks have also successfully shifted towards more deposit funding, reducing their dependency on market funding.

"The proportion of low-cost deposits, defined as current and savings deposits, in the banks' deposit base is also increasing, a trend that will help keep down deposit costs and partially offset falling net interest margins," says Lee.

Meanwhile, banks are taking advantage of favorable markets by refinancing, at lower prices, the heavy issuance made during the global financial crisis. This refinancing requirement will remain a key driver behind their issuance in coming years.

Banks' foreign-currency loan-to-deposit ratios edged up slightly in Q1 2014, driven by their increased purchases of export and exchange bills from exporters. Moody's expects ongoing export strength to fuel foreign currency inflows and stabilize the ratio. However, Korean banks still have foreign-currency loan-to-deposit ratios higher than their Asian peers due to the presence of policy banks that rely mostly on market funding.

Aside from strong foreign-currency deposit growth, banks are also refinancing foreign-currency debt in longer maturities. Reflecting this development, the system-wide portion of short-term foreign-currency debt reduced to 16.8% of total foreign-currency debt at end-2013 from 50.1% at end-2008.

Finally, Moody's notes that the banks' external liquidity buffers have continued to strengthen. The five major commercial banks improved their foreign-currency liquidity buffers by expanding committed credit lines from foreign financial institutions, which hit another high in 2013.

The government has also increased its capacity to support foreign-currency liquidity, in times of need, given its falling short term external liabilities and increasing foreign currency reserves.

Subscribers can access the report at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_174145

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jeffrey Lee
Associate Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Sophia Lee
Vice President - Senior Analyst
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Graeme Knowd
Associate Managing Director
Financial Institutions Group
JOURNALISTS: (03) 5408 -4110
SUBSCRIBERS: (03) 5408-4100

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

No Related Data.
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