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S. Korea's financial soundness positive for credit rating: Moody's

All News 15:25 February 29, 2016

SEOUL, Feb. 29 (Yonhap) -- South Korea has strengthened its external payment position and reduced vulnerability to global market shocks, which would have positive impacts on its credit ratings, Moody's Investors Service said Monday.

Pointing to data by the Bank of Korea (BOK) last week, the global credit rating agency said the country's record-high level of net international investment position (IIP) is "credit positive for Korea because it reflects a continued and significant strengthening of the country's external payments position."

"(It) reduces the sovereign's vulnerability to global financial market shocks and capital outflows," it added.

According to the BOK, the country's IIP reached US$198.8 billion, or 14.7 percent of the gross domestic product, as of the end of last year, a 79-percent surge on-year and the highest level since the central bank began compiling the data in 1994.

In December last year, Moody's upgraded South Korea's credit rating to Aa2 from Aa3, the highest-ever rating Asia's fourth-largest economy has received from the agency.

The Aa2 rating is the third-highest rating given by Moody's, with only six other countries out of the Group of 20 advanced and developing nations currently with that rating, according to the finance ministry.

The increase in the IIP came despite a weak local currency against the greenback, which has reduced the value of the Asian country's euro- and Japanese yen-denominated portfolio investments, Moody's noted.

"Korea is now better insulated from the types of external funding market shocks experienced in 2008 and even more so than in 1997, when Korea had to ask for support from the International Monetary Fund," Moody's said, citing the central bank's macro-prudential measures and improved risk management by local lenders were mainly attributable to the successful containment of systemic risks.

South Korea's stronger net IIP, along with its current account surplus which is estimated at 6.9 percent of GDP in 2016, "shields the government, banking and corporate sectors from capital outflows, particularly during this period of heightened perceptions of geopolitical risk and global financial market uncertainty," the agency said.

Earlier this month, Moody's warned that the recent shutdown of the inter-Korean industrial complex in North Korea's border town of Kaesong could have adverse impacts on Seoul's credit ratings.

The move came as punishment for Pyongyang's launch of a long-range rocket which came on the heels of its fourth nuclear test last month. Bashing the South for the move, the North expelled all workers and froze all assets belonging to South Korean firms.

graceoh@yna.co.kr
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