Korea Ratings Corporation: "Credit Polarization by Industry to Deepen This Year... Petrochemicals and Construction to Remain Weak"

Korea Ratings Corporation assessed that while the downward trend in credit ratings across the corporate and financial sectors continued last year, the extent of downgrades was less severe compared to the previous year. However, the agency forecasted that credit polarization between industries will intensify further this year, depending on differences in performance and competitiveness by sector.

On January 7, Korea Ratings Corporation made these remarks during the '2026 Industry Outlook Review' webinar.

According to Korea Ratings Corporation, the Up/Down Ratio for credit ratings last year was 0.77, an improvement from 0.53 in 2024. In the first half of the year, the downward trend in ratings continued, especially in construction, petrochemicals, and secondary financial sectors. However, in the second half, as industries such as defense, power equipment, semiconductors, and securities benefited from favorable market conditions, the number of rating upgrades increased, thereby easing the extent of downgrades.

By industry, a pronounced K-shaped polarization was observed, driven by differences in market conditions and competitiveness within each sector. Credit ratings declined in sectors such as petrochemicals, construction, cinemas, gaming, cement, retail, pharmaceuticals, and paper manufacturing. In contrast, sectors such as defense, power equipment, shipbuilding, trading companies, and semiconductors showed an upward trend.

Jung Seungjae, Head of Rating Policy at Korea Ratings Corporation, explained, "The main factors behind the downgrades were weakened performance and reduced resilience to market conditions due to a deteriorating business environment." He added, "Among petrochemical companies, there were eight cases of downgrades, the highest among all sectors. Additionally, shifts in demand trends in industries such as gaming, cinemas, and retail also contributed to the downgrades."

By business group, the decline in credit ratings was most notable for Lotte Group and SK Group. Jung stated, "For Lotte Group, the group-wide credit rating fell, centered on Lotte Chemical and Lotte Construction, resulting in downgrades for four affiliates, including the holding company." He continued, "For SK Group, the restructuring of its business portfolio, asset sales, and reduced likelihood of affiliate support were reflected in its credit rating."

In the financial sector, savings banks, real estate trusts, and non-life insurers experienced downgrades, while life insurers, securities companies, capital, and NPL (non-performing loan) sectors saw upgrades. He noted, "Life insurers' ratings were raised based on strong capital adequacy, and the credit ratings of Kiwoom Securities and Meritz Securities also improved due to capital expansion and enhanced competitiveness."

As of last year, there were 24 positive and 21 negative outlooks or watchlist actions. He commented, "The positive direction has slightly overtaken the negative, mainly due to a significant increase in positive outlooks and a slight decrease in negative ones compared to the end of the first half last year."

Korea Ratings Corporation projected that the K-shaped polarization will persist due to structural and economic differences by industry. As a result, credit differentiation between industries is expected to continue. The agency also highlighted the need to monitor ongoing uncertainties in both domestic and global environments, including global tariffs, geopolitical risks, the boom in artificial intelligence (AI), exchange rates and interest rates, domestic demand and real estate market conditions, and the effectiveness of government policies.

Furthermore, for this year, the agency assessed that the outlook for industries and credit ratings is negative for petrochemicals, construction, retail, duty-free, steel, cinemas, secondary batteries, savings banks, and real estate trusts. In contrast, semiconductors, shipbuilding, and defense are expected to have a positive outlook.

He identified short-term risk factors for companies as global low growth, excess production in China, competition with China, protectionism, and prioritization of domestic industries. In the financial sector, he cited downward rigidity of interest rates, capital allocation efficiency, sluggish domestic demand, and real estate market polarization, as well as related policies and regulations, as key issues.

Meanwhile, Korea Ratings Corporation forecasted that South Korea's economic growth rate will reach 1.8% this year, driven by a robust semiconductor market and a recovery in domestic demand. However, polarization among industries remains a challenge to overcome. The agency also cited the following as factors that could impact the Korean economy: the economic situation in the United States and China, AI-driven growth, tariffs, protectionism, and geopolitical risks.