Global credit ratings agency Standard & Poor's said that it has upgraded its sovereign credit rating for South Korea by one notch, citing reduced geopolitical risks stemming from North Korea.
S&P raised Korea's credit rating from A to A plus, the fifth highest level on its rating grade, and maintained its rating outlook for Asia's fourth largest economy at stable. It is the first upgrade by S&P for Korea in seven years.
S&P said that "The upgrade reflects our less negative assessment of the geopolitical risks on the Korean peninsula. It follows what we judge to be a smooth change of leadership in the Democratic People's Republic of Korea or North Korea."
It added that "We believe that this transition has reduced risks that the DPRK regime could abruptly collapse or that it would escalate military confrontations."
S&P joined two other major credit agencies, Moody's and Fitch, which recently hiked ratings on Korea by one notch each to Aa3 and Aa-.
The ratings are either on a par with or higher than its regional rival Japan. S&P's rating is still one notch lower than Japan.
Still, thanks to S&P's upgrade, South Korea has recovered its sovereign ratings from all of the three agencies to the levels it held before the 1997-98 financial crisis.
Mr Choi Jong ku, a senior finance ministry official, told reporters that "It is very meaningful that S&P, which tended to grant ratings on Korea more conservatively than the others, finally made the decision on the upgrade."
S&P noted that it could raise its ratings on Korea further if Korea sustains its strong economic performance in the next few years and lifts its per capita gross domestic product to levels more comparable with those of higher rated sovereigns.
Less reliance on external short term funding by the banking sector and resulting possibly eased susceptibility to international financial troubles were also cited as reasons for future rating hikes.
However, the agency worried that Korea might see relatively weak economic indicators for the next one or two years due in part to the global economic downturn.
It forecast that real GDP growth of Korea will likely average 2.8% in 2012 and 2013, which is below the 3.5% average growth tallied in the previous five years.
Source - Yonhap News
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