Hong Kong, December 17, 2018 -- Moody's Investors Service says that its overall outlook for the
financial industry in Korea (Aa2 stable) is stable for 2019, with
four of the five sectors carrying a stable outlook.
"Our 2019 outlook for Korean banks is stable, but risks for
the banks are rising because of the weakening growth in the Korean economy,"
says Sophia Lee, a Moody's Vice President and Senior Credit
Officer.
Moody's also holds stable outlooks for the life insurance and non-life
insurance sectors through 2019, as well as for securities companies.
"However, our outlook for credit card companies for 2019 is
negative, because of their falling profitability," says
Sophia Lee.
Moody's conclusions are contained in its report titled "Financial
Institutions — Korea: 2019 Outlook".
With the banks, Moody's stable outlook is based on their steady
asset quality, which is driven in turn by strong private sector
balance sheets and ongoing government support to small- and medium-size
enterprises through liquidity facilities and credit guarantees.
Moody's says that the banks' stable profitability will be
supported by rising net interest margins and low credit costs; factors
that add to the banks' resilience, against the backdrop of
rising economic risk.
Moreover, the banks demonstrate sufficient capitalization,
as seen by the industry's average common equity Tier 1 ratio,
which exceeds 12%.
On life insurers, Moody's says that the insurers' solid
capital and improving product mix are factors that support the stable
outlook for the sector, but asset risk is still rising because of
higher foreign-exchange risk and higher hedging costs.
Premium growth for life insurers is moderating, because of the weakening
economy and product shift. Nonetheless, gradually rising
interest rates are lowering negative spreads.
Moody's points out that life insurers are continuing to change their
product mix towards more protection-type policies and floating-rate
policies; leading to steady margin improvement. And,
life insurers are also continuing to strengthen their capitalization,
as a result of regulatory and accounting changes.
As for non-life insurers, their improving profitability and
stable capital levels support Moody's stable outlook for the sector,
despite rising asset risks.
In particular, while premium growth for non-life insurers
is slowing against the backdrop of a weakening economy, profitability
is improving because of premium adjustments in the auto and medical indemnity
products. Moreover, the insurers continue to strengthen their
capitalization, as a result of regulatory and accounting changes.
Non-life insurers' investment yields will also improve,
due to a gradual rise in interest rates.
Moody's stable outlook on Korean securities firms is based on Moody's
assessment that these companies will benefit from a stable economic environment
and the public's rising appetite for riskier assets.
Securities companies will continue to face rising asset risk as they move
into new business such as corporate lending, but their stable profitability
and capital will help offset these risks. Industry funding will
remain sound, with liquidity facilities available from the Bank
of Korea and Korea Securities Finance Corporation (Aa2 stable, a2).
With Moody's negative outlook on Korean credit card companies,
Moody's explains that the cut in the credit card merchant fee,
effective January 2019, will lower significantly the industry's
profitability.
And, these companies' delinquency ratios will rise from all-time
lows because of slowing economic growth and weak consumer sentiment.
In addition, disruption from technological advancements will continue
to prompt card companies to make sizable related investments.
Subscribers can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1151711
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Sophia Lee
VP - Senior Credit Officer
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
Client Service: 852 3551 3077
Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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
Client Service: 852 3551 3077