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| A man wearing a mask passes by the Hana Bank's main branch in downtown Seoul, Sunday. / Yonhap |
S&P, JPMorgan expect earlier key rate cut
By Park Jae-hyuk
The global economic slowdown led by the spread of the novel coronavirus will worsen financial stability and profitability of Korean banks over the next few quarters, according to S&P Global Ratings, Thursday.
"The economic slowdown in China, the origin for the coronavirus, will weigh on export-reliant Korean companies," the credit rating agency said in its recent report.
"If the reduction in foreign operations and inbound tourists to Korea leads to the overall decrease in domestic consumption and household incomes, the financial soundness of Korean households with large debts will weaken."
S&P expected Korean banks' bad debts expense will increase gradually.
"Due to the global oversupply and intensifying competition, shipbuilders, shippers and steelmakers will continue to suffer difficulties," it said.
"Manufacturers including carmakers are also facing setbacks as they temporarily suspended production due to the delayed supply of parts from Chinese."
Hyundai Motor's management and its union agreed Tuesday to close all of its local production from Friday as the coronavirus outbreak is hitting component supply chains.
Renault Samsung also plans to halt operations in Korea for three days starting next Tuesday, due to management disruptions in its supply chain.
Although the rating agency expected most Korean banks will maintain their credit ratings with sufficient capital and prudential risk management, it warned some of the banks may face credit downgrades.
"If the financial stability of banks severely weakens and their bad debts expenses increase, following the intensifying downward pressure in the global economy and the lingering economic slowdown, some Korean banks will face downward pressure on their credit ratings," it said.
Against this backdrop, S&P said the government and the central bank may carry out expansionary fiscal policies and monetary easing to minimize the impact of the virus on the economy.
In June 2015, the Bank of Korea (BOK) cut its key rate to counteract the economic slowdown over the outbreak of Middle East respiratory syndrome (MERS).
"The government's expansionary fiscal policy will prevent rapid decline in demand for loans," it said.
J.P. Morgan Chase also said concerns have grown over the BOK's pre-emptive monetary easing, because of the novel coronavirus outbreak.
Although the global investment bank maintained its previous view that the central bank will freeze the key rate in the forthcoming monetary policy board meeting later this month, its analyst Park Seok-gil said his company will keep a close watch on the demand-side impact of the infection.
