Global credit rating agency Moody's lowered Korea Investment & Securities' credit rating by one notch.
According to the financial investment industry on the 24th, Moody's cut Korea Investment & Securities' long-term foreign-currency issuer rating and long-term foreign-currency senior unsecured debt rating to "Baa3" from "Baa2." Baa3 is the lowest tier within the "investment grade" ratings. The short-term rating was also lowered to "P-3" from "P-2."
Moody's said it took into account that Korea Investment & Securities is gradually shifting to a "high-risk, high-return" model and that its funding structure has weakened. Moody's also lowered Korea Investment & Securities' baseline credit assessment to "Ba2" from "Ba1."
Moody's noted that Korea Investment & Securities' risk appetite is higher than that of rivals. As of the end of June, the risk appetite ratio was 24.5%, above the domestic competitors' average of 20%.
Funding via issuance of short-term notes was also cited as a risk. Korea Investment & Securities' outstanding balance of such notes currently stands at 18 trillion won, equal to 174% of its equity capital. At the end of this month, a paid-in capital increase worth 900 billion won from parent company Korea Investment Holdings will also proceed.
A Moody's representative said, "The notes have maturities of less than one year, but the funds raised will be invested in long-term corporations finance and venture capital," adding, "An increase in the notes could negatively affect Korea Investment & Securities' asset-liability maturity profile."
However, the outlook on Korea Investment & Securities' rating was revised up to "stable" from "negative." Moody's set conditions for an upgrade in Korea Investment & Securities' credit profile, including ▲ structural improvement through long-term funding ▲ approaching a risk appetite ratio of around 20% ▲ maintaining a leverage ratio below 6 times.
In response, a Korea Investment & Securities official said, "The adjustment to our credit rating announced by Moody's reflects recent market conditions and changes in our business structure," adding, "Despite this adjustment, we continue to maintain industry-leading profitability and competitiveness in the capital markets, and there is no change in our sound financial structure and stable liquidity management stance."
The official added, "Other major international credit rating agencies, S&P and Japan's JCR, have raised our credit rating and outlook," and said, "We will continue to respond proactively to changes in the business environment and pursue growth."