Fitch vs. Moody’s: Should Korean banks go abroad?

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By Park Jae-hyuk –  The  Korea Times

Fitch Ratings and Moody’s Investors Service are divided over the expansion of Korean banks overseas ― especially in the Southeast Asian market, which has seen brisk activity recently in line with the Moon Jae-in administration’s New Southern Policy.

While the former has remained skeptical of the strategy, the latter has supported their moves, citing the low growth and interest rates here.

Fitch said Friday that Korean banks and their holding companies have yet to achieve favorable outcomes abroad.

“Overseas growth has fallen short of banks’ ambitious targets. Higher capital charges, competition and few affordable acquisition targets will likely keep offshore growth in check,” Fitch’s head of Asia-Pacific bank ratings Jonathan Cornish said in a special report titled, “What Investors Want to Know: Asia-Pacific Investment-Grade Banks.”

The U.S. ratings agency has already warned of risks inherent in the rapid expansion of Korean financial companies into the Southeast Asian market, saying their strategies will have a negative impact on their operating environment scores and credit ratings.

“A rapid growth in a bank’s exposures to overseas markets, especially to developing markets, may expose it to greater volatility in the event of shock,” Fitch’s director of financial institutions Matt Choi said during a press conference in Seoul, Sept. 24.

His analysis also implied that Korean financial groups should slow down their overseas expansion. He said if the exposure grows rapidly while all other factors remain equal, this will have a negative impact on their overall credit scores.

Moody’s, on the other hand, spoke positively about Korean lenders going abroad.

“We do not think their entries into the Southeast Asian market will impact significantly on their credit ratings,” Moody’s Investors Service’s senior credit officer of financial institution group Sophia Lee said in a press conference in Seoul, Nov. 19.

“They can improve their profitability as they go to the market with a larger net interest margin. It is also fortunate for them that they have just acquired small microfinance companies, without carrying out a large-scale M&As. As the proportion of their overseas assets are very low, the exposure will not have a large impact on their credit ratings.”

She also said her company did not regard Korean banks’ overseas takeovers as credit negative, considering their size and pace.

Against this backdrop, Standard & Poor’s (S&P) Global Ratings admitted risks inherent in the banks’ overseas expansion, but it maintained its optimistic view on their strategies.

“Although some Korean banks have pursued overseas expansion, they are expected to enter the foreign markets moderately, without threatening their assets and risk management,” S&P’s financial services ratings director Kim Dae-hyun said during a press conference in Seoul, Tuesday.

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