S. Korean banking sector to recover<\/p>\n
Shin Jung-Won, Dow Jones, Seoul<\/p>\n
The South Korean banking industry is likely to recover next
\nyear as provisioning levels fall but economic risks such as the
\nweakening ability of households and companies to repay debt will
\npose a threat, said an analyst at Standard & Poor's Ratings
\nService.<\/p>\n
\"In the short term, the debt payment ability (of households
\nand companies) will affect the industry the most,\" said Young Il
\nChoi, S&P's credit analyst for South Korean financial
\ninstitutions, in an interview with Dow Jones Newswires. \"Banks
\nhave to strengthen their credit risk management particularly as
\nthe gap between companies with good credit status and those with
\npoor status is widening.\"<\/p>\n
Most analysts expect the banking industry to begin to recover
\nas early as the fourth quarter as provisioning amounts, which
\nrocketed during the second quarter due to the 1.55 trillion won
\n(US$1=1,170 won) accounting scandal at SK Networks, shrink.<\/p>\n
But Choi said other economic factors such as savings,
\ninvestments, the employment rate and economic growth outlook will
\ncontinue to hurt the banking industry's performance in the near
\nterm.<\/p>\n
\"The overall situation isn't good. Savings and investment
\nrates have been falling in the past few years and the employment
\nrate remains poor. The uncertainty over GDP growth and bubbles in
\nthe property market should also negatively affect banks,\" said
\nChoi.<\/p>\n
The South Korean economy grew 6.3 percent in 2002 but slid
\ninto recession earlier this year, its first since the Asian
\ncrisis of 1997-98. It shrank 0.4 percent in the first quarter
\nfrom the previous quarter and a further 0.7 percent in the second
\nquarter. The government and central bank officials have said that
\nGDP growth could fall below 3 percent this year.<\/p>\n
Savings deposits at local banks fell 700 billion won during
\nthe third quarter, compared with a rise of 200 billion won in the
\nsecond quarter. Unemployment stood at 3.2 percent in September, a
\ntouch below 3.3 percent in August but well above 2.9 percent in
\nSeptember 2002.<\/p>\n
Choi said a possible plunge in real estate prices also
\nseriously threatens the banking industry's recovery.<\/p>\n
Spiraling property prices, particularly in Seoul, have
\ntriggered a series of measures so far this year including higher
\ntaxes and restrictions on mortgage lending.<\/p>\n
The government is expected to announce another set of measures
\nOct. 27.<\/p>\n
\"Although the default ratio on mortgage loans has been
\nclimbing, it hasn't so far become a big problem for the banking
\nsector as real estate prices have remained high. A sharp fall in
\nreal estate prices will hurt banks as debt repayment ability will
\nlikely weaken even for the rich,\" said Choi. \"The best scenario
\nwill be for the government to announce measures that will trigger
\na gradual drop in real estate prices.\"<\/p>\n
The credit card operations of banks are also likely to remain
\na drag, although the credit card sector should improve next year.<\/p>\n
\"Losses related to card operations were huge this year. Next
\nyear, they will break even or post a loss...not much help to
\nbanks' profitability,\" he said.<\/p>\n
Choi also feels that Kookmin Bank's move to venture overseas
\nmay be premature.<\/p>\n
Last month, Kookmin Bank and Singapore's Temasek Holdings
\njointly submitted a bid for a 51 percent stake in PT Bank
\nInternasional Indonesia. Soon after, Kookmin Bank merged with
\nunit Kookmin Credit Card.<\/p>\n
\"The bank needs to take a conservative approach to expand into
\nother countries,\" said Choi. \"It isn't creating sufficient
\nprofits at home now and it hasn't finished reorganizing its
\noperations following the merger.\"<\/p>\n
In June, S&P revised its outlook on the long-term rating on
\nKookmin Bank to negative from stable and affirmed its 'BBB+'
\nlong-term and 'A-2' short-term ratings.<\/p>\n
S&P said it was concerned about Kookmin's credit to small and
\nmid-size enterprises amid the economic downturn. The agency also
\nmentioned the bank's weakened earnings prospects due to its
\nfairly large exposure to card credit and its ability to manage
\nthese risks over the next few years.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/s-korean-banking-sector-to-recover-1447893297",
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"sponsor": "Okusi Associates",
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