Moody`s gives Korea upgrade to record-high `Aa3` rating

Korea’s sovereign rating has reached a record high and matched those of China and Japan.

Moody’s upgraded the country`s sovereign rating on Monday one notch from "A1" to "Aa3" and assigned a stable outlook. "Aa3" is the fourth highest among the international rating agency’s 21 ratings and the highest for Korea.

Korean and global financial institutions say the upgrade represents the Korean economy’s soundness and fundamentals. The move came at a time when the ratings of many developed economies were downgraded in the wake of the European debt crisis.

Korea maintained an "A1" rating until October 1997 but the rating fell to "Ba1," or investment grade, in the wake of the 1998 Asian crisis. The figure gradually climbed back up to "A2" in 2007.

In April 2010, Moody’s upgraded Korea`s sovereign rating from "A2" to "A1," and changed the outlook from stable to positive in April, heralding an upgrade.

On factors behind the upgrade, the ratings agency mentioned good financial strength, economic vitality and competitiveness, decreased vulnerability in the banking sector, and stable management of North Korean matters.

“A further upgrade is possible if banks have stable financing conditions and the debts of government-sponsored entities and households decline,” Moody`s said. The upgrade positioned Korea to match the ratings of China, Japan, Taiwan and Saudi Arabia. Fitch, another global rating agency, gave Korea its fifth-highest grade of "A+," which is equal to Japan`s, but Korea has a positive outlook whereas Japan has a negative one. Since July 2005, S&P has maintained its "A (stable)" rating for Korea, which is two notches below Japan`s.

The Korean government said it expects the upgrade to help Korean financial institutions and companies finance capital at lower costs and improve foreign investor sentiment.

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