Market conditions for memory chips, secondary batteries, and shipbuilding are expected to improve next year.
Written by Anna J. Park
Experts from credit rating agencies S&P Global Ratings and NICE Investors Services said on Wednesday that the looming threat from domestic and foreign real estate project financing is expected to be the biggest challenge facing the South Korean economy next year.
At a joint press conference held by the two companies in Yeouido, Seoul’s financial district, experts spoke on the issue of real estate project finance loans held by secondary financial institutions such as securities companies, capital companies, and real estate companies. He pointed out that some of them are bankrupt. Trust and savings bank risks will start to surface next year, posing significant risks to companies with high exposure to the real estate sector.
“The credit rating outlook for the securities, capital, real estate trust and savings banking industries next year is indicated to be negative. The main reasons are the increased potential risks associated with real estate project financing and the decline in asset prices. It’s a decline in profitability due to adjustments,” Lee said. Hyuk-jun, director of FI ratings at NICE Investors Service, said this at a press conference.
“In terms of size and content, real estate risks this year have not yet significantly reduced. Most bridging loans will only have their maturities extended rather than being recovered. Therefore, securities companies, capital companies, savings Banks expect companies that maintain high-risk exposure to bridge loans to perform poorly next year.
He said some of these secondary financial institutions, which have a weaker ability to draw the necessary external capital, are at risk of having their major shareholders replaced if the potential risks associated with real estate project finance materialize. I warned you.
Meanwhile, the banking, life insurance, non-life insurance and credit card industries are estimated to remain stable throughout next year as their business models are well-suited to high interest rate conditions and their exposure rates are much lower. Up to real estate project finance.
Kim Dae-hyun, director of S&P Global Ratings’ Asia-Pacific financial services rating group, shared similar views on the issue. He said real estate project finance bankruptcies could occur, given that the current high interest rates are likely to continue for some time and may primarily affect the non-banking sector.
“The financial health of South Korea’s banking sector is expected to deteriorate next year due to high levels of household debt and real estate conditions, but given proper underwriting and financing, it is not sound enough to damage credit ratings. “Korean banks’ risk management is not expected to deteriorate,” Kim said, adding that securities companies and savings banks have been shown to be vulnerable due to exposure to real estate project financing risks, including bridge loans. he emphasized.
Ki Tae-hoon, director of rating policy at NICE Investors Service, also pointed out that the growth momentum of the Korean economy next year may slow down slightly due to the overall decline in corporate credit ratings.
“The number of domestic companies with improved ratings has decreased by 45% as of November this year compared to a year ago, and downgrade pressure is increasing.In particular, the financial sector has seen a negative trend in ratings.”, Non-financial compared to the industry,” Ki said.
By sector, market conditions for memory chips, automobiles, secondary batteries, and shipbuilding are expected to improve next year, while petrochemicals, steel, construction, displays, shipping, and other sectors are facing a deteriorating business environment.
Meanwhile, Louis Cuis, Asia Pacific chief economist at S&P Global Ratings, expects interest rates to start falling in the second half of next year, and that any movement will be limited.
Regarding the South Korean economy, Mr. Quijis told The Korea Times that in the short term, South Korea’s economic outlook remains one of the strongest in the Asia-Pacific region, but in the long term, as the global economy moves towards further growth, the economic outlook will continue to decline. said it could face additional hurdles. Fragmented blocks.
S&P predicts that South Korea’s GDP will grow by 2.2% in 2024, and the Consumer Price Index (CPI) will rise by 2.6%. South Korea’s sovereign credit rating is AA with a stable outlook.