Moody's: Korean household debt pressures ABS and RMBS

"This can lead to a deterioration in loan performance in Korea, in turn exerting pressure on ABS and RMBS transactions," says Marie Lam, a Moody's Vice President and Senior Credit Officer.

Lam was speaking at the release of a new Moody's report titled, "The Evolving Korean Household Debt Market Pressures Securitization Transactions".

According to the report, more Koreans are borrowing to pay for their living expenses and there is an increase in borrowers from the older age group and lower income group.

Korea's low unemployment rate -- which has stayed at 3% to 5% over the last few years -- may not provide a cushion against the deterioration in loan performance because self-employed people, who make up about 23% of the employed population, have in general incurred much higher debt than households in general.

Therefore, although the performance of the loans is good currently, it is an unreliable indicator of future loan performance because of this structural weakness in the portfolio.

The report notes that ABS transactions with unsecured receivables are particularly vulnerable because these transactions are revolving and securitize new receivables and new accounts from time to time.

Secured mortgage loans are less susceptible, as they have accumulated more than 60% in equity, which provides a good cushion against obligor defaults and any decline in property price.

"We believe the performance of the loans could deteriorate rapidly under a stressed scenario. However, our central scenario for Korea is that the economy will grow 3%-4% in 2012 and the banking system will remain stable," adds Lam.

Subscribers can access this report via this link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF287017.***

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Marie Lam VP - Senior Credit Officer Structured Finance Group 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) Koji Kumamaru MD - Structured Finance Structured Finance Group JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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