The credit outlook for Korean financial and non-financial corporations are stable for 2017 on the back of support by steady economic growth and low commodity prices, Moody’s announced on Tuesday.

At a media briefing session prior to the 14th annual conference on Korean firm’s credit outlook in Seoul, Michael Taylor, managing director and chief credit officer at Moody’s Investors Service based in Hong Kong, highlighted Korea’s strong fiscal position that will help to smooth the ongoing economic restructuring, despite rising challenges in the global economy. 

“We expect global growth to stabilize at low levels, although long-term growth rates are tending downwards,” he said. “In that context, we expect Asia will continue to register growth, although challenges are rising. Korea’s strong fiscal position in particular provides it with a buffer against these global and regional headwinds.”

Moody’s expects Korea’s economic growth to remain largely stable at 2.5 percent in 2017, unchanged from its estimation in 2016. In October, the credit rating agency kept its outlook for the Korean economy at ‘Aa2 (stable).’

The institution said its global outlook for the shipping and shipbuilding industries remain sluggish, and in Korea, the two sectors have been pressuring the asset quality of banks.

“Most exposures are assumed by policy banks whose ratings already reflect the weaknesses in these sectors,” said Graeme Knowd, managing director at Moody’s Financial Institutions Group. “Secondary effects such as rising unemployment and weakening consumption are yet to be seen in the most affected regions, but we are closely monitoring the asset quality trends of banks in those regions.”

Non-financial corporates are forecast to benefit from steady economic growth and low commodity prices, the experts said. Financial leverage of Korean businesses are expected to remain stable or slightly improve next year backed by stable earnings and prudent investments.

“But conditions vary per sector, with those for the telecom, refining and chemical sectors more supportive than those for retail and steel sectors,” said Chris Park, an associate managing director at Moody’s.

With regard to risks to the Korean economy, Taylor cited high leverage in the household sector and geopolitical issues including a possible collapse of the North Korean regime.

“The rising protectionist sentiment suddenly could have negative implications for countries with high exposure to global trade, but in Korea’s case, we say that its trade openness is not that high compared to similar countries,” Taylor said.

As for the ongoing political crisis involving President Park Geun-hye, the Moody’s expert said that the political risk will not affect the country’s credit rating in the near future.

“We see that economic agencies of the Korean government continue to function well,” Taylor said. “Our baseline view is the government will continue with active roles in the president going forward, and we don’t see any factors that are eroding Korea’s credit rating.” 

By Song Su-hyun (song@heraldcorp.com)