66 Companies with Credit Rating Downgrade Last Year Up 22% YoY..."Continued Pressure on Rating Downgrades"

[Asia Economy Reporter Park Jihwan] Last year, the number of companies with downgraded credit ratings totaled 66, marking a 22.2% increase compared to the previous year. Although there were no sudden credit rating drops or spikes in default rates following the COVID-19 pandemic, pressure for rating downgrades continues to persist.

According to the "2020 Credit Rating Performance Analysis and Supervision Direction" released by the Financial Supervisory Service on the 6th, 34 companies experienced credit rating upgrades last year, while 66 companies saw downgrades. Compared to the previous year, the number of upgraded companies decreased by 3 (8.1%), and downgraded companies increased by 12 (22.2%).

Last year, the rating volatility rate was 2.8%, down 0.6 percentage points from the previous year. This indicates that the downward adjustment trend has been maintained following the previous year. The rating volatility rate is calculated as the difference between the number of upgrades and downgrades divided by the number of companies holding valid ratings at the beginning of the year, expressed as a percentage.

At the end of last year, 195 companies held rating outlooks (excluding 'Stable'), among which 'Negative' outlooks (155 companies, 79.5%) outnumbered 'Positive' outlooks (40 companies, 20.5%). The proportion of 'Negative' outlooks has increased from 55.9% at the end of 2018 to 65.0% in 2019, and 79.5% last year, indicating a strengthening trend toward rating downgrades.

A Financial Supervisory Service official explained, "Recently, the number of companies with downgraded credit ratings has increased, and the downward trend in ratings has strengthened, creating an overall atmosphere of sustained downward pressure. Although there have been no sharp declines in credit ratings or spikes in default rates since the COVID-19 outbreak, the possibility of credit rating fluctuations is expanding."

As of the end of last year, the number of companies holding unsecured bond credit ratings was 1,240 (including duplicates), an increase of 109 from 1,131 at the beginning of the year. Among companies issuing unsecured bonds last year, two companies defaulted. The annual default rate was 0.27%, down from 0.91% the previous year.

The average cumulative default rate (1998?2020) showed a clear difference between investment grade (0.13?1.39%) and speculative grade (6.29?14.16%), generally indicating a strong correlation between rating and default rate. This means that credit evaluations were relatively accurate.

Last year, the market share in the credit rating sector was led by Korea Ratings Corporation (33.8%), Korea Investors Service (32.5%), and NICE Investors Service (32.4%), maintaining a triopoly. The combined revenue from credit rating services of these three agencies was 109.52 billion KRW, a 6.7% increase from 102.69 billion KRW the previous year.

A Financial Supervisory Service official stated, "There is concern that rating downgrade risks may become more visible if economic recovery is delayed due to the resurgence of COVID-19. We will continue to monitor changes in credit ratings."

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