Fitch: South Korean banks' loan quality remains excellent

Fitch Ratings said that strong loans growth of certain South Korean banks over 2006 has resulted in reduced margins for all banks and has also apparently pushed the banks toward more risky borrowers, particularly speculative property investors, unsecured personal loan borrowers, as well as others engaging in carry trade activities.

Of more general concern to the agency is the fact that this stronger, higher-risk loans growth has come at a time when the South Korean economy is displaying signs of softness, which may be a continuing trend, depending on U.S. economic growth.

That said, as it currently stands, the loan quality for the South Korean banks is excellent, with non-performing loans now negligible after a long-standing period of benign economic conditions, Fitch added.

Furthermore, while underlying profitability has decreased due to margin contraction, the agency said it remains satisfactory and is a sufficient buffer for a more challenging environment.

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