Bank of Korea enhances talks with S&P amid impeachment ruling concerns

As the impeachment ruling against President Yoon Suk-yeol approaches, the Bank of Korea is intensively managing the country's credibility by conducting consecutive meetings with international credit rating agencies and global investment banks (IBs). Given the potential for a decline in national credit ratings if political uncertainty prolongs, it appears that the Bank of Korea has taken preemptive action.

◇ Bank of Korea holds annual meeting with S&P on the 12th… Participation from the Research Bureau, Financial Stability Bureau, and Currency Policy Bureau

According to the Bank of Korea on the 14th, the annual meeting delegation from the international credit rating agency Standard & Poor's (S&P) visited the headquarters of the Bank of Korea in Sogong-dong, Jung-gu, Seoul, on the 12th to conduct discussions. This meeting is part of the annual consultation for evaluating South Korea's national credit rating. S&P is expected to announce the final credit rating in May after discussions from the 10th to 14th followed by a review period of about 2 to 3 months.

The Bank of Korea has fully prepared for this annual meeting. While the meeting is typically attended by practical personnel at the Director and Head of Team levels, this time the overall team leaders from key departments such as the Research Bureau, Financial Stability Bureau, and Currency Policy Bureau were dispatched. This action is interpreted as a move to proactively respond if S&P expresses concerns about the widening uncertainties in the Korean economy related to President Yoon Suk-yeol's impeachment trial and other political instability.

A Bank of Korea official noted, "Normally, practical personnel would primarily attend S&P's annual consultation, but this time, the overall team leaders from major departments directly participated in the discussions," adding, "Due to various political and economic issues, we were more attentive than before."

The Monetary Policy Committee is also focusing on enhancing the credibility of the Korean economy by conducting meetings with global investment banks and foreign institutional investors. According to the Bank of Korea, Commissioner Shin Sung-hwan had subsequent meetings with CitiBank (on the 10th) and Goldman Sachs (on the 12th) this week. The meetings included economic and investment experts such as chief economists and portfolio managers.

Commissioner Shin, in a phone conversation with ChosunBiz, remarked, "The investment banks were asking me questions about the Korean situation, and I inquired about the concerns foreign investors had," stating, "Investors were worried about various uncertainties in Korea's economic policies."

In addition to meetings with CitiBank and Goldman Sachs, Commissioner Shin had another meeting with an investment bank last week. This is the first time since March of last year that Commissioner Shin has conducted more than three meetings in a month. A Bank of Korea official said, "This year, the growing economic uncertainty at the beginning of the year has resulted in a surge of meeting requests from investment banks wanting to understand the Korean situation."

◇ Fitch and Moody's warn of negative impact on Korean credit due to heightened political tension

The active measures being taken by the Bank of Korea are due to the growing concerns over a potential decline in national credit ratings as political instability remains unresolved. Among the three major credit rating agencies (Fitch, S&P, Moody's), Fitch, which first published its credit rating for Korea this year, maintained the country's credit rating at "AA-, stable," but warned that political uncertainty could become a potential risk factor.

Fitch stated in its report that if Korea's political uncertainty persists, government debt increases, or serious geopolitical risks arise that could lead to significant economic deterioration, credit ratings could be downgraded. It also noted, "We will closely evaluate the impact of future political situations on the momentum of economic policy implementation."

In a report published on December 6 last year, shortly after the state of emergency was declared, Moody's assessed, "If the political repercussions prolong, it could hinder the government's ability to address numerous challenges such as economic growth slowdown, difficult geopolitical environments, and structural constraints from aging population," adding that "if political tensions escalate and disrupt economic activities for a prolonged period, it could have a negative impact on credit."

As international credit rating agencies continued to issue negative evaluations, the government has also taken action. In early January of this year, a government-wide national credit response committee was launched under the Ministry of Economy and Finance, which has strengthened cooperation with global credit rating agencies. Additionally, International Ambassador Choi Jong-woo was dispatched to countries like Singapore and Hong Kong to hold presentations on the Korean economy and conduct direct meetings with officials from international credit rating agencies.

Another Bank of Korea official stated, "Currently, both domestic and international economic conditions are challenging, which is particularly burdensome for our export-oriented country," adding, "As the government focuses on managing credit ratings, the Bank of Korea is also responding accordingly."