South Korean banks face increased performance uncertainty: Fitch

Blame it on higher credit costs from ongoing restructuring.

Fitch forecasts a slightly better performance for Korea’s banking sector in 2017. However, this comes with higher uncertainty because of potentially large credit costs from the ongoing restructuring, particularly in the shipbuilding sector amid slowing growth in China – the destination for 21% of Korea’s exports.

The rating agency notes that the political turmoil arising from the ‘shadow president’ scandal and the presidential election in December 2017
should contribute to the rising uncertainty in sector performance and regulatory supervision
.
Nevertheless, Fitch expects expansionary measures to support frowth.

"We think the Korean government has sufficient scope in terms of monetary/fiscal measures and policy financing to support the economy and
buffer any unexpected adverse developments, at least for the next few years," it said.

Fitch expects Korea’s authorities to maintain borrower-friendly measures, including a low policy rate, to alleviate the high household debt burden and support ailing industrial sectors to weather economic headwinds.