(Updates with S&P comments in third paragraph.)

Dec. 14 (Bloomberg) -- Standard & Poor’s affirmed South Korea’s sovereign debt ratings and said the outlook is “stable,” with economic strength balancing geopolitical risks on the divided peninsula.

S&P maintained the nation’s A foreign-currency and A+ local-currency long-term ratings, according to a statement released today. The rating company also affirmed the nation’s short-term grading.

“Korea’s favorable policy environment, sound fiscal position, and a net external creditor position lend support to the government’s creditworthiness,” the statement said. “These strengths are balanced against the significant security risks and contingent liabilities that the sovereign faces.”

S&P warned of possible rating downgrade if tensions on the Korean Peninsula escalate significantly or if North Korea fails to manage a smooth political succession.

The active trading in the Korean won also helps to mitigate risks arising from the external debt at financial companies, S&P said.

Fitch Ratings on Nov. 7 upgraded the outlook for South Korea’s long-term foreign-currency rating to “positive” from “stable,” and affirmed the A+ grade. Fitch cited more resilient sovereign and external balance sheets due to strict fiscal policy and currency-swap deals with Japan and China.

--Editors: Brett Miller, Paul Panckhurst

To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net;

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net