Why Korean banks will still suffer from asset quality pressure

Ugly months are looming.

According to Moody's Korean banks have been suffering from sustained asset quality pressure since the global financial crisis, and analysts expect this pressure to persist in the coming 12-18 months.

First reason is the weak global demand, especially from the developed markets and China. Second is the recent depreciation of the JPY, which exerts pressure in terms of price competitiveness on Korean exporters.

Here's more from Moody's:

Although Tier 1 capital ratios are declining, due to capital rising more slowly than risk weighted assets (RWA), the fall has been tempered by improved prudential regulations. Strengthened regulations include a requirement to maintain contingent credit loss reserves and limits on dividends. These factors have together assisted in improving the loss-absorption capacity of the banks.

Tepid loan growth will pressure profitability levels, and an environment of low domestic interest rates will lead to further contraction in lending margins. President Geun-hye Park’s pro-consumer stance will pressure the industry to make concessions on retail loan rates and fees