Bank Credit Rating Evaluation Meetings Also 'Non-Face-to-Face'... Some Schedules Postponed (Comprehensive)

Due to COVID-19, meeting format replaced by conference calls
S&P postpones some scheduled annual consultations with commercial banks from September to November

[Asia Economy Reporter Park Sun-mi] Due to the global resurgence of the novel coronavirus infection (COVID-19), disruptions have occurred in the credit rating evaluations of domestic banks.

On the 31st, according to the banking sector, Standard & Poor's (S&P), one of the three major credit rating agencies, notified that the annual consultation meetings with the five major banks, originally scheduled for September, have been postponed to November. The meeting format will also be changed from face-to-face meetings to conference calls. Even though it is a conference call, the evaluators from the rating agency need to gather in one place, which caused concerns amid the resurgence of COVID-19.

Before the spread of COVID-19, credit rating agency inspection teams visited Korea once a year to hold annual consultation meetings with banks for credit rating evaluations. Banks prepared data for credit rating evaluations and devised strategies to receive or maintain favorable ratings and outlooks in line with the inspection teams' visits.

However, this year, due to the spread of COVID-19, both the schedule and format of the annual consultation meetings between international credit rating agencies and domestic banks have changed. Other banks that completed their annual consultation meetings between April and June this year also applied the unusual format of conference calls instead of face-to-face meetings, considering the COVID-19 situation. Some had their annual consultation meetings, originally scheduled for early in the year, postponed until June to conduct credit rating evaluations.

"Limitations in conveying positions through conference calls" "No overseas meetings scheduled for the second half"

A bank official said, "Conducting evaluation meetings in the form of conference calls rather than face-to-face meetings inevitably places a burden on the evaluated banks," adding, "There are limitations in conveying the bank's position adequately through conference calls despite preparing for the meetings." Another bank official stated, "Since international rating agencies issue reports related to credit ratings, banks usually hold separate meetings in places like Hong Kong after the annual consultation meetings to explain their positions," but added, "However, due to COVID-19, overseas meetings scheduled for the second half of the year have not been arranged."

The spread of COVID-19 has not yet directly affected the credit ratings and outlooks of the five major domestic banks. All five major banks?KB Kookmin, NH Nonghyup, Shinhan, Woori, and Hana?have been assigned A or A+ ratings by S&P. The rating outlooks are concentrated on 'Stable' among the three categories: 'Positive,' 'Stable,' and 'Negative.'

However, if the COVID-19 resurgence continues, the exposure of banks to small and medium-sized enterprise loans may further increase, and the extension of principal maturities and interest payment deferrals on 'COVID loans' could damage the asset soundness of banks, making it uncertain how long the current ratings and outlooks can be maintained. In March, when COVID-19 spread rapidly in local areas, Moody's, a credit rating agency, began reviewing credit rating downgrades for domestic regional banks.

Due to the impact of COVID-19, the capital ratios, a core soundness indicator of domestic banks, have declined for three consecutive quarters. According to the Financial Supervisory Service, as of the end of June, the total capital ratio of domestic banks based on the Basel Committee on Banking Supervision (BIS) standards was 14.53%, down 0.19 percentage points from the end of the previous quarter. This was influenced by an increase of 50 trillion won in credit risk-weighted assets, mainly in corporate loans. The total capital ratio has been on a continuous downward trend, falling from 15.4% at the end of the third quarter last year to 15.25% at the end of the fourth quarter, then to 14.72% at the end of the first quarter this year, and 14.53% at the end of the second quarter.

This content was produced with the assistance of AI translation services.