Moody's Investors Service has changed the outlook for Korea's banking system to stable from negative, reflecting its assessment that the overall creditworthiness of Korean banks will be stable over the next 12-18 months.
In addition, the revision follows Moody's individual rating actions on Korean commercial banks on 8 December, 2017, and 12 December, 2017, with the result that 14 of the 17 Korean banks covered by Moody's now have stable outlooks.
Moody's conclusions are contained in its just-released report, "Banking System Outlook Update -- Korea Stronger economic growth and stabilizing asset quality support stable outlook".
The previous negative outlook had been in place since April 2016 and this latest report is an update to the Banking System Outlook for Korea, last published in May 2017.
Moody's currently assesses as stable all five key drivers for Korea's banking system outlook: operating environment; asset risk and capital; funding and liquidity; profitability and efficiency; and government support.
Stronger economic growth in Korea has resulted in an improved operating environment for the banks, and Moody's has raised its forecast for real GDP growth to 3% for 2017 and 2.8% for 2018, from 2.5% and 2.0%, respectively. Korea's economy is growing at the strongest pace among G20 countries.
Korean banks are also well capitalized with a system-wide common equity Tier 1 (CET1) ratio of 12.7% and a total capital adequacy ratio of 15.4% as of September 2017. Improved profitability and modest asset growth will result in stable capital ratios.
Profitability will be stable on higher net interest margins and lower credit charges. Korean banks' profitability improved in 2017, supported by improving net interest margins (NIMs) and declining credit charges.
Funding and liquidity will also be stable, and after Korea's introduction of net stable funding ratio (NSFR) requirements in January 2018, Moody's expects all Korean banks to meet the 100% minimum.


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