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| Fitch Ratings' associate director of Asia-Pacific sovereign ratings Jeremy Zook, left, and director of financial institutions Matt Choi answer questions from reporters during a press conference at the Westin Chosun Seoul, Tuesday. / Courtesy of Fitch Ratings |
By Park Jae-hyuk
Fitch Ratings has warned of risks inherent in rapid expansion of Korean financial companies in the Southeast Asian market, saying their strategies will have a negative impact on their operating environment scores and credit ratings.
The global ratings agency's warning is expected to weigh on domestic financial firms, which have sought new income sources in emerging markets including ASEAN nations.
"A rapid growth in a bank's exposures to overseas markets, especially to developing markets, may expose it to greater volatility in the event of shock," Fitch Ratings' director of financial institutions Matt Choi told reporters during a press conference in Seoul, Tuesday, which was held on the sidelines of the Fitch on Korea 2019 Conference.
Backed by the Moon Jae-in administration's New Southern Policy, local banking groups have expanded their presence in countries such as Vietnam, Indonesia, Myanmar and Cambodia.
According to the Financial Supervisory Service, they planned to open 34 branches in the "New Southern countries" as of the end of June.
In addition, chiefs of the nation's state-run and commercial banks accompanied President Moon on his six-day trip to Thailand, Myanmar and Laos in early September.
They met heads of financial institutions there to boost financial ties with those countries.
Fitch's analysis, however, implies that Korean financial groups should slow down their efforts.
"Korean banks' overall exposure to developing markets is still moderate, so their overseas market presence has had limited impact on their operating environment scores and credit ratings," Choi said.
"If the exposure grows rapidly while all other factors being equal, however, this will have a negative impact on their overall credit scores."
According to the director, the operating environments of Vietnam and Indonesia are single B and triple B, respectively ― far lower than Korea's, which is A+.
"A downward pressure in operating environment is inevitable, if exposure to Southeast Asia or other emerging markets increases," he said, adding his company has taken overseas exposure into account when it evaluates the credit ratings of Japanese banks, which have already settled down the Southeast Asian market.
He also said further upgrades in operating environment scores for Korea's major commercial lenders will be limited in the near-to-medium term, because of Korea's structurally slowing economy with high household leverage and rapidly aging population.
"Moreover, near-term headwinds suggest heightened downside risk to the economy due to the global trade frictions and a cyclical downturn of the semiconductor industry," he said.
"Subdued corporate earnings and tighter lending standards on household present challenges for banks to increase revenue and assets while maintaining sound asset quality."
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