Strong economy to buoy Korean banks growth prospects

Corporate deleveraging is also expected to keep bad loans down.

Robust economic conditions are expected to lend support to the growth prospects of Korean banks, according to credit rating agency Moody’s, with year-end real GDP poised to grow at a faster pace at 3% in 2018. 

“The operating environment for Korean banks in the next 12-18 months will be supported by healthy economic growth and Korea's real GDP is expected to grow faster than that of all other advanced G-20 countries in 2018, driven by strong external demand and domestic policies,” Moody’s said in a statement.

Thawing economic relations in the Korean peninsula is also a net positive for the banking sector, Moody’s added, with reports coming in that South Korean lenders are deploying teams to assess possible business opportunities in the North. 

Also read: South Korean banks intensify inter-Korean business preparations amidst peace talks

Asset quality also won’t be a problem for Korean lenders as large corporates are making good progress on their deleveraging efforts, supported by bank lending to borrowers of above-average credit standing. The non-performing loan ratio dipped to a stable 1.18% in Q1, according the Financial Supervisory Service with bad loans extended to businesses falling from $18.06b (19.4t) in Q4 to $17.97b (19.3t won) as of end-March. 

Funding and liquidity conditions also remains table as Korean banks maintain good total and foreign currency liquidity coverage ratios. Banks are expected to report year-end net stable funding ratio of about 110%, said Moody’s.

"When we look at the key drivers, we assess that the operating environment is stable; asset quality is benign; whilst capitalisation, profitability, as well as funding and liquidity are all stable," said Sophia Lee, a Moody's vice president and senior credit officer.

Photo from Jimmy McIntyre - Editor HDR One Magazine - Seoul Cityscape From the Sky Park, CC BY-SA 2.0