by안근모 기자
2000.06.13 16:06:04
News Release
June 13, 2000
S&P : Aftermath – Korean Bank Industry Emerges From Crisis
The slide in credit quality of the Korean banking industry slowed during 1999 as the economic environment improved and restructuring at the banks began to take effect. Nevertheless, industry risk remains high, according to a new report by Standard & Poor’s.
According to the report, fundamental structural problems remain in the Korean banking industry, and the sector continues to be vulnerable to developments in the macroeconomy, particularly increases in interest rates.
Some progress has been made in tackling the structural problems inherent in the banking system, such as high levels of domestic debt, weak credit control, and weak capitalization, that served to exacerbate the financial crisis in 1998. Solvency in the sector has improved, as the government recapitalized the weakest elements of the system, and both domestic and international capital markets regained confidence in Korean issuers, alongside the improving economy.
Although structural reforms have not yet eliminated all the problems in the banking system, the system’s improved capitalization and the slowdown in asset quality problems, together with an overall more benign operating environment, have resulted in some stabilization of the sector.
The outlook is more positive for those banks that were not substantially involved in industrial policy loans, have better asset quality, and are undertaking structural reform. The lower level of financial and managerial disorder at such institutions should ensure that they benefit relatively quickly from the continuing improvement in the external environment.
Despite the upturn in the operating environment, there are several trends and issues that could inflict significant damago on the banking sector. The high leverage of Korean corporations and their weak financial profiles will continue to put pressure on the asset quality of Korean banks. Remaining structural problems need to be resolved, and the financial profiles of borrowers strengthened, before risk in the banking sector falls to levels similar to that in markets with more mature banking systems.
The complete Korean Bank Industry Risk Analysis is available on RatingsDirect, Standard & Poor’s Web-based credit analysis service. For a free trial of RatingsDirect, please contract Minako Yoneyama in Tokyo at +81-3-3593-8746
Contacts : Graeme Knowd, Tokyo 03-3593-8742
Terry Chan, Singapore 852-2533-3590
Kyota Narimatsu (media contact) 03-3593-8588