Korea’s Shinhan Card likely to maintain stable capital and liquidity

However, asset quality and profitability are expected to weaken, says Moody’s.

South Korea’s Shinhan Card is expected to maintain stable capital and liquidity despite continued pressure on its asset quality and profits.

Asset quality is expected to weaken as a result of high interest rates and the rising number of personal debt restructuring, noted Moody’s Ratings in a report.

“Due to high interest rates and a rise in the number of personal debt restructuring, Shinhan Card's problem loan ratio has increased to 1.93% as of the end of 2023 from 1.49% a year earlier,” The ratings agency wrote in its latest commentary of Shinhan Card, where it reaffirmed its A2 foreign and local currency issuer ratings.

Profitability is also expected to decline to 1% in 2024 on the back of rising average funding costs and elevated credit costs.

However, Moody’s does not forecast a significant rise in credit costs, in part thanks to Shinhan Card’s sufficient level of loan loss reserves to problem loans ratio at 178% as of the end of 2023.

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Moody's also foresees that Shinhan Card's cash flow and liquidity will remain stable. The bank’s asset-liabilities mismatch is low, and its regulatory liquidity ratio was strong at 364% for the last quarter of 2023. The ratings agency said. 

“The company also maintains sizable undrawn committed credit lines from domestic and international banks. If needed, Shinhan Card can also utilize asset-backed securities issuance because the company has sufficient available unencumbered assets,” it added.

Shinhan Card is also assumed to enjoy a “very high level of affiliate support” from its parent Shinhan FG, and due to its importance to Shinhan FG and Shinhan Bank.

Moody’s also expects the company to enjoy a high level of support from the Korean government in the event of problems. The agency expects any government support for Shinhan Card to flow through Shinhan FG.