Moody's 2020 outlook negative for life insurers and securities companies

Moody's Investors Service’s 2020 outlook for Korean financial institutions has changed to negative from stable for securities companies and life insurers. The outlook is unchanged at stable for banks, credit card companies and non-life insurers.

The outlook is based on the key drivers of lower-for-longer interest rates, disruptive technologies, and trade tensions between the US and China, and Korea and Japan.

Moody's also said that the pressure on interest margins from the Bank of Korea's two benchmark rate cuts in 2019 will continue to be felt by the country's financial sector in 2020.

"In response, the banks will focus more on growing fee income and overseas markets," said Sophia Lee, a Moody's vice president and senior credit officer.

Tae Jong Ok, a Moody's Analyst, added: "Securities companies will quicken the growth of their off-balance sheet and overseas exposures, while credit card companies will promote their lending business.”

Young Kim, a Moody's analyst, said: “Meanwhile, insurers will extend their exposures to overseas and alternative investments.”

Lee added: "The key drivers of our stable outlook for Korean banks are their strong capitalization, stable asset quality from lower interest rates, the improved credit metrics of corporate borrowers and strong prudential measures on household loans."

For credit card companies, Moody's stable outlook takes into account the companies' strong capitalization, stable leverage and Moody's view that pressure on profitability from cuts to card merchant fees will be somewhat offset by continued growth in card transaction volumes and lower funding and marketing costs.

As for securities companies, the negative outlook reflects rising asset and funding risks, as Korean securities firms expand their corporate lending and acquire overseas investment assets, amid falling brokerage commissions and higher uncertainties in the operating environment.

With life insurance companies, the negative outlook is driven by lower-for-longer interest rates, which will widen the insurers' negative spreads, weaken profitability and raise asset risk.

The stable outlook for non-life insurance companies takes into account the insurers' solid capitalization and benign asset quality, despite their elevated loss ratios.

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