Fitch Ratings Inc., one of the world’s major credit raters, Tuesday maintained Korea’s sovereign ratings at “AA-” and long-term outlook at “stable,” citing the country’s solid growth and strong control over bad loans. 

“The Korean sovereign ratings reflect a strong macro-economic performance, moderate government debt and strong external balances, while exposure to geopolitical risk arising from the longstanding conflict with North Korea and low per capita income weigh on the rating,” Fitch stated in a press release.

The New York-based rating agency kept Korea’s long-term foreign currency issuer default rating at “AA-” and long-term local currency issuer default rating at “AA.” The issue ratings on Korea’s senior unsecured foreign and local currency bonds are also affirmed at “AA-” and “AA” respectively.

Korea’s long-term issuer default ratings are affirmed at “stable,” the country ceiling at “AA+” and the short-term foreign currency issuer default rating at “F1+.”

According to the report, Korea ranked 11th among the 32 economies that received ratings this year. A total of 17 economies obtained Fitch’s rating in the A range this year. The highest “AAA” bracket includes the U.S. and Germany, Canada, Australia and Singapore. Then comes the “AA+” bracket with Britain and Hong Kong and “AA” with France, Saudi Arabia and Belgium. Korea was the sole economy in the “AA-” bracket.

A notch below Korea were China, Taiwan and Chile, ranked “A+,” Japan at “A” and Malaysia and Ireland in the “A-” group.

Fitch expects Korea’s external and domestic demand will recover, citing the Korean government’s push for a fiscal stimulus package of 22 trillion won ($19.2 billion), 1.4 percent of the gross domestic product. Fitch expected growth in Asia’s fourth-largest economy to recover over the years: 2.9 percent in 2015, 3.4 percent in 2016 and 3.6 percent in 2017.

Yet as one of the weaknesses, Fitch pointed to Korea’s $33,440 per capita income, one of the lowest in the “AA” category and well below the “AA” median of $53,780.

“Per capita income will likely continue to be low compared with peers for a long time, as sustaining high GDP growth levels in the longer run will be challenged by a rapidly aging population, relatively low labor productivity and a growth model based on manufacturing exports that may be less successful in the future.”

Fitch warned that Korea’s high and rising household debt, 164.2 percent of disposable income as of end of 2014, also increases Korea’s vulnerability.

Korea’s high and increasing household debt limits policy flexibility, as they appear to “constrain the Bank of Korea from further loosening its monetary policy stance when the average inflation of 1.1 percent in the previous 2 1/2 years has been well below the inflation target of 2.5-3.5 percent.”

Korea’s Fitch rating has remained steady since September 2012, when the New-York-based rating agency raised the rating to “AA-” for the first time in 16 years. In the 1997-2002 period, the rating had plunged in to the “B-” to “BBB+” range in the wake of the 1997 Asia financial crisis.

By Chung Joo-won (joowonc@heraldcorp.com)

(photo: Yonhap)