Korea Ratings: "Unfavorable Business Environment Expected for Real Estate, Credit Card, and Savings Banks in Financial Sector Next Year"

Korea Ratings has forecast that the real estate trust, credit card, and savings bank sectors will face an unfavorable business environment in the financial sector next year.

On December 12, Korea Ratings predicted that the business environment for eight sectors in the financial industry-including non-life insurance, life insurance, installment finance, banking, and securities-will remain neutral next year. In contrast, it expects the real estate trust, credit card, and savings bank sectors to encounter unfavorable conditions.

Korea Ratings explained that the real estate trust sector is being affected by delays in the recovery of the real estate development market and widening polarization between regions. Senior Researcher Kim Sunjoo stated, "While housing starts reached 540,000 units in 2020 and 2021, the cumulative total for the third quarter of this year was only 170,000 units. The proportion of unsold homes in non-metropolitan areas has reached 77%, and the gap in initial sales rates between private apartments in metropolitan and non-metropolitan areas is clear, indicating that regional polarization will persist."

The outlook for the credit rating of real estate trust companies was also downgraded to 'negative.' Kim explained, "Unless there is a meaningful improvement in financial soundness through recovery of trust account receivables and capital expansion, the trend of rating downgrades is expected to continue."

For credit cards, the company explained that the sector will face an unfavorable business environment due to sluggish growth in card usage. In the payment services segment, performance is expected to grow moderately, supported by an improvement in the consumer sentiment index in the second half of this year. However, in the loan services segment, performance is projected to contract. This is due to increased oversight by financial authorities over card loans and the strengthening of household loan regulations.

Nevertheless, the outlook for credit ratings was assessed as 'neutral.' Although growth is constrained, strong financial soundness means there is little concern about a decline in creditworthiness. Kim noted, "Each card company has different sensitivities to funding costs, and there is a growing divergence in risk appetite within business portfolios, so differences in performance among card companies will emerge." He added, "It is also necessary to monitor the results of the financial authorities' investigation into the Lotte Card data breach and any impact on profitability and business foundations."

Regarding savings banks, the company explained that ongoing burdens from project financing (PF) resolution are limiting their capacity for business expansion. Researcher An Taeyoung emphasized, "The continued burden of resolving PF makes it difficult to actively expand real estate-related loans, which are the main business. Furthermore, the strengthening of debt restructuring regulations and the increase in borrower debt restructuring are likely to expand risk management burdens, leading to a contraction in personal credit loans."

Korea Ratings also expects it will be difficult for savings banks' credit ratings to be upgraded in the short term. The outlook for next year is 'neutral.' An stated, "The credit ratings of all covered savings banks have been downgraded over the past two years. While some recovery in performance is expected next year, the possibility of a short-term rating upgrade remains low."

For securities companies, both the business environment and rating outlook were neutral, but performance is expected to improve. However, with new approvals for issuance notes and integrated investment accounts (IMA), the gap in performance between large and small-to-medium-sized firms is expected to widen further.

Senior Researcher Yoon Minsu explained, "Differences in capital strength will be reflected in the scale of product management and corporate finance (IB) deal sourcing capabilities, while differences in retail business foundations will be reflected in the performance of brokerage and asset management. Through new business approvals, enhanced capital utilization, and the expansion of retail business foundations, the market dominance of comprehensive IBs is expected to grow across the industry."