Moody's "COVID-19 Impact on Domestic Banks' Asset Quality... Tourism Hit"

[Asia Economy Reporter Lee Seon-ae] International credit rating agency Moody's stated on the 18th that the spread of the novel coronavirus infection (COVID-19) will have a negative impact on the asset soundness of domestic banks.

Moody's predicted that the spread of COVID-19 could cause disruptions in many industries within Korea, which could lead to an expansion of asset soundness risks for some banks exposed to these effects.

Moody's analyzed, "Although the government recently announced liquidity support measures to respond to the spread of COVID-19, which will mitigate the occurrence of non-performing loans in the short term, if the situation prolongs, the recognition of non-performing loans may be delayed, adversely affecting the asset soundness of banks."

It also pointed out, "Depending on the progression of the COVID-19 outbreak, support may be needed for large corporations, and if financial authorities push for more aggressive liquidity support, leverage (borrowing) of related industries and companies will increase, potentially causing broader risks to the banking sector."

However, Moody's added, "The Korean banking sector generally possesses very strong capital adequacy and credit soundness, providing a solid buffer against potential disruptions."

Regarding the impact of COVID-19, Moody's explained, "The industries most severely affected are tourism, aviation, accommodation, food service, and retail, with a decline in tourism demand and sluggish consumption," and "Manufacturing may also be negatively affected given that China is the largest export market and the largest source of imports."