Credit ratings agency Moody’s maintained a negative outlook on the South Korean banking industry, citing worsening business environment amid weak domestic consumer sentiment and banks’ asset quality.

Sophia Lee, vice president and senior credit officer at Moody’s, said in a report that the change in administration under President Moon Jae-in brings uncertainty around policy direction on household debt and corporate restructuring, which weighs on the banks’ operating environment.

“Asset quality will deteriorate as corporate loans come under pressure due to contracting corporate revenue amid a slowing economy and rising market interest rates,” Lee said in the report.

She assumed that the growth of the nation’s gross domestic product will slow from 2.6 percent in 2016 to 2.5 percent in 2017 and further to 2 percent in 2018.

“The prolonged restructuring of sectors with overcapacity, such as shipbuilding, will increase problem loans and contingent liabilities, particularly for policy banks.”

Moody’s has maintained the negative outlook on the Korean banking sector since May last year.

Among the 17 local banks that Moody‘s rates, 11 lenders received stable outlook on the deposit ratings and the other six, negative outlook. The six banks are KEB Hana Bank, Shinhan Bank, Busan Bank, Daegu Bank, Kyongnam Bank and Kwangju Bank.

By Kim Yoon-mi (yoonmi@heraldcorp.com)