By Lee Hyo-sik
Staff Reporter
Moody's Investor Service, one of the three major global credit ratings agencies, has expressed concerns over Korean banks' short-term overseas borrowing, calling it "too excessive," government sources here said Monday.
Along with geopolitical risks associated with North Korea, Moody's said the domestic banking sector's high level of short-term external debt is a major obstacle to upgrading its ratings for Asia's fourth-largest economy as it is extremely vulnerable to outside shocks.
A government official familiar with the matter told The Korea Times that it will be unlikely for the ratings agency to revise upward its outlook for Korea in the near future, despite the nation's stronger-than-expected economic rebound from the unprecedented worldwide economic slump.
A Moody's delegation, led by senior vice president Thomas Byrne, was here from March 24 to 26 to hold a series of meetings with Korean policymakers. They met with officials from the Ministry of Strategy and Finance, the Bank of Korea, the state-run Korea Development Institute and other economy-related bodies. The ratings body is expected to issue an assessment report on Korea next month.
"Moody's raised issue with local lenders' high exposure to short-term dollar-denominated loans. Despite the easing of the global financial crisis, it continues to remain uneasy about Korea's overly leveraged banking sector, saying the domestic financial sector could be hit hard by a reoccurrence of the international market meltdown," the official said.
Following the collapse of Lehman Brothers in September 2008, Korea suffered from the global credit crunch, with foreigners taking dollars out of the country. The local currency plunged against the dollar, with the local stock and bond markets crashing hard.
Against this backdrop, the government and the central bank injected massive liquidity into the financial sector to improve credit conditions.
The official also said Moody's was concerned about renewed North Korea risks, following the sinking of a naval frigate in the West Sea. On March 26, the 1,200 ton frigate Cheonan, carrying 104 crew members, sank near the western sea border with North Korea after reporting an unknown explosion that tore the ship in two.
"North Korean risks are nothing new and have been a good excuse for global credit ratings agencies to not raise Korea's outlook in the past. But the sinking of the naval ship is obviously having a negative impact on Moody's assessment of the Korean economy," the official added, indicating the agency will likely leave Korea's sovereign rating unchanged at the current "A2" for the foreseeable future.
Moody's cut its credit rating for Korea sharply to "Ba1" after the 1997-98 Asian financial crisis. But it raised Korea's rating to the current "A2" in July 2007 and has since kept it unchanged with a stable outlook. Before the currency crisis a decade ago, the nation had an "A1," one notch higher than the "A2."
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