Standard & Poor’s Ratings Services raised on Friday South Korea’s credit rating from “A” to “A+,” the fifth-highest level on its rating system.

It is the first time in seven years that the international ratings agency has upgraded Korea’s ratings. It maintained the rating outlook for Asia’s fourth-largest economy at “stable.”

“The upgrade reflects our less negative assessment of the geopolitical risks on the Korean Peninsula. It follows what we judge to be a smooth change of leadership in the Democratic People’s Republic of Korea. We believe that this transition has reduced risks that the DPRK (North Korea) regime could abruptly collapse or that it would escalate military confrontations,” said S&P through a press release.

Two other major credit rating agencies, Moody’s and Fitch, also recently hiked their ratings for Korea by one notch, to “Aa3” and “Aa-,” respectively. Korea is the first-ever A-rated country for which all Big Three agencies upgraded the ratings in the same year.

S&P also noted that it projects South Korea’s economic and financial metrics to continue to support the long-term foreign currency rating at the “A+” level although it expects the nation’s economic indicators will be relatively weak in the next one to two years, reflecting the global economic slowdown and domestic measures to slow the growth of private sector leverage.

“Real GDP growth is likely to average 2.8 percent in 2012-2013, below the 3.5 percent average of the previous five years,” it said.

The upgrade also reflects the nation’s favorable policy environment, sound fiscal position, and broadly balanced external liability position, said S&P.

“The internationally and actively traded Korean won also helps to mitigate risks arising from the reliance on external debt by the country’s financial sector. Net external debt of the financial sector has risen from 6 percent of current account receipts in 2005 to a projected 17 percent in 2012,” it stated.

“The Korean government’s healthy fiscal position also supports its creditworthiness, in our view. Including the social security fund balance, Korea has reported general government surpluses in most years since 2000. The net general government debt level, which we project at 21 percent of GDP in 2012, is also modest.”

S&P also raised the ratings on four Korean government-related entities ― the Export-Import Bank of Korea, the Small Business Corp., the Korea Housing Finance Corp. and the Korea Finance Corp.

By Park Min-young (claire@heraldcorp.com)