Moody's sees limited rating impact on S.Korea banks

SEOUL: Moody's Investors Service said on Tuesday, Sept 7, that an expected surge in credit losses from a sluggish domestic housing market was unlikely to have material rating implications for most South Korean banks.

The housing market in Asia's fourth-largest economy has started to show signs of weakness with price falls of about 10% in the Seoul metropolitan areas since the end of 2009.

The ratings agency sees South Korea's housing market remaining in a correction phase over the short- to medium-term following a decade-long boom.

"A prolonged downturn in the Korean housing market should severely affect property developers and construction firms, which in turn would weigh on the earnings of Korean banks," Moody's said in a statement.

Recent government measures aimed at boosting housing transactions are unlikely to turn the sector around, it added.

The ratings agency picked Kookmin, Woori and two specialised lenders -- NACF and Suhyup Bank -- as more exposed to the housing sector than their local competitors.

But given South Korean mortgages tend to be extended on conservative loan-to-value ratios, Moody's did not expect a massive increase in the number of mortgages falling into negative equity and defaulting.

The extent of a possible deterioration in the housing sector would also be mitigated by the relative balance between supply and demand in Seoul and neighbouring cities, the resilient domestic economy and the government commitment to preventing a hard landing in the housing market, it said.