The sudden death of North Korean leader Kim Jong-il will likely have a limited impact on South Korea's financial markets, a senior finance ministry official said Tuesday, citing relatively stable overnight offshore market situations.

South Korea's stock and currency markets tumbled on Monday, sparked by the announcement of Kim's death. The benchmark KOSPI dropped 3.43 percent, while the local currency closed at 1,174.8 won against the U.S. dollar, down 16.2 won from the previous close.

Against this backdrop, the finance ministry and other related agencies set up 24-hour emergency teams to respond quickly to potential developments that could arise and fuel public and market concerns.

"At this moment, we expect that the sudden death of North Korean leader Kim Jong-il will have a limited impact on the financial markets at home and abroad," Vice Finance Minister Shin Je-yoon told a market-evaluation meeting with other officials.

Shin noted that overnight foreign currency markets have avoided extreme volatility, citing relatively stable non-deliverable forward (NDF) trading and credit default swap (CDS) premiums on South Korea's foreign currency bonds.

He emphasized it is the "general consensus" that major credit ratings agencies offshore foreign exchange markets will not adjust the sovereign ratings on South Korea due to Kim's death.

His assurance comes after Standard & Poor's, Moody's Investor Service and Fitch Ratings said earlier they would not adjust South Korea's ratings given its strong economic fundamentals and the soundness of its financial sector.

Moody's Investor affirmed its sovereign rating on South Korea at "A1," and Fitch Ratings in November upgraded its rating outlook for South Korea's sovereign debt to "positive" from "stable,"

confirming its credit rating for South Korea at "A plus," its fifth-highest level.

Last week, S&P said that it maintains the credit rating on South Korea at "A," the sixth-highest level, and also keeps the country's credit outlook at "stable."

However, geopolitical risks associated with North Korea have always been mentioned as potential downside factors weighing on South Korea's sovereign ratings.

S&P, in particular, expressed concerns about the geopolitical risks and heavy costs from possible reunification with the North, saying, "if a smooth political succession in North Korea shows signs of becoming unlikely, negative implications for the credit ratings would be likely." (Yonhap News)