Surge in Low-Interest Funding Companies... Credit Rating Market Grew 10% Last Year

[Asia Economy Reporter Ji Yeon-jin] Last year, amid a low interest rate environment, companies proactively issued corporate bonds to secure liquidity, resulting in the credit rating market growing by more than 10%.

According to the "2021 Credit Rating Performance Analysis and Implications" released by the Financial Supervisory Service (FSS) on the 4th, the revenue from the credit rating sector of domestic credit rating agencies last year was 120.7 billion KRW, an increase of 10.3% (11.2 billion KRW) compared to the previous year. The scale of corporate bond issuance increased from 186 trillion KRW in 2020 to 203 trillion KRW last year, leading to higher revenue from corporate bond evaluations.

The number of companies rated by these credit rating agencies last year for unsecured corporate bonds (general corporate bonds) was 1,318 (including duplicates), an increase of 78 from the beginning of the year. The number of investment-grade (AAA to BBB) companies was 1,132, up by 87 from 1,045 at the start of the year, while speculative-grade (BB to C) companies decreased by 9 from 195 to 186. The proportion of speculative-grade was 14.1%, which exceeds the pre-COVID average of 9.8% over the past three years.

The number of defaulted companies rated was 2, with an annual default rate of 0.24%, down from 0.27% the previous year. The FSS reported that all defaulted companies were speculative-grade.

Last year, the number of companies whose credit ratings improved was 41, an increase of 7 compared to the previous year, while rating downgrades decreased by 8 to 58. The credit rating maintenance rate was 90.7%, a 0.9 percentage point decrease from 91.6% the previous year. The maintenance rate for AA-rated companies increased, whereas for all other ratings except AA, the maintenance rate declined.

An FSS official stated, "There were no default cases among investment-grade (BBB and above) companies, and a strong correlation between credit rating and default rate is maintained, indicating good credit rating performance," adding, "Although downward adjustments in credit ratings continue to dominate, the number of companies with a 'negative' outlook is decreasing, showing gradual recovery from the impact of the COVID-19 crisis."

However, the FSS noted that recent political and economic risks such as rising interest rates, global supply chain restructuring, and increased volatility in raw material prices could affect credit ratings. Therefore, they plan to continuously monitor credit rating changes, especially for corporate bonds, and to keep improving the credit rating system.

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