By Cathy Rose A. Garcia
Moody’s Investors Service said Thursday that the sluggish housing market is one of the key factors that prevent the global ratings agency from raising its ratings on South Korea.
``We did upgrade Korea (to A1 from A2) back in April and the outlook was stable... A1 is the most likely rating over the next 12 to 18 months,’’ Moody’s Senior Vice President Tom Byrne said at a press briefing at the Westin Chosun Hotel, downtown Seoul, Thursday.
One of the risks that South Korea faces is from its sluggish housing market, although Byrne assured it is not an ``imminent risk.’’
``It will be riskier if the global economy suffers a big dip, but we don’t see (the housing market) as crashing imminently,’’ he said.
Moody’s sees the Korean housing market as remaining weak, thus placing more pressure on a handful of Korean banks, which have higher loan exposure to residential properties, and engineering and construction companies.
Among the 15 banks rated by Moody’s, four banks, namely Kookmin Bank, NACF, Woori Bank and Suhyup Bank, were most likely to be affected.
``We conducted a stress test for the property sector in Korea. In our understanding, mortgages at the banks were increasing, but the exposure to construction companies and financial loans is still there... We think more losses are coming because we think this property market will remain sluggish. It’s not really going to be sharp plunge but it will still be sluggish,’’ said Moody’s senior analyst Choi Young-il.
The Bank of Korea’s decision to keep interest rates frozen at 2.25 percent for the last three months is expected to have a limited impact.
``The Korean government has demonstrated its commitment to lending to the property market by keeping the chronically low interest rates. I think this will help the property market but I don’t think it will significantly improve the weak sentiment,’’ Chris Park, another senior analyst, said.
Also, Byrne said any geopolitical uncertainty arising from recent developments in North Korea have already been factored in by Moody’s. The Korea-U.S. military alliance and China’s interest in stability on the Korean Peninsula will prevent North Korea from taking any provocative measures.
``The key uncertainty in North Korea is whether the regime will be stable, and the power transition would probably mean North Korea has more breathing space,’’ Byrne said.