RPT-Fitch affirms NongHyup Bank rating at 'A'/stable

Fri Jan 10, 2014 7:50am EST

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Jan 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has today affirmed Korea-based NongHyup Bank's (NHB) Long-Term Issuer Default Rating (IDR) at 'A' with Stable Outlook, Support Rating (SR) at '1', and Support Rating Floor (SRF) at 'A'. A full rating breakdown is provided below.

KEY RATING DRIVERS - IDRs, SR, SRF and senior unsecured debt

The rating actions follow the emergence of NHB's parent, NongHyup Financial Group (NHFG), as the preferred bidder to acquire Woori Finance Holdings' (WFH, BBB+/Stable) stakes in three of its non-bank subsidiaries: a 37.9% stake in Woori Investment and Securities, a 99% stake in Woori Aviva Life Insurance (including 48% from Aviva plc ), and a 100% stake in Woori FG Savings Bank. Fitch expects the acquisitions (valued at about KRW1.1trn in total) to be fully debt funded by NHFG.

NHFG is a financial holding company wholly owned by the National Agricultural Cooperative Federation (NACF). It was spun-off from NACF in March 2012. NHB is 100% owned by NHFG.

Currently, NHB's IDRs are driven by the expectation of state support, if it is needed. In Fitch's assessment, the acquisitions would not have a significant impact on the potential government support for NHB. NHB's '1' SR and 'A' SRF reflects Fitch's continued belief of an extremely high probability of support for the bank from the government - more than for the major commercial banks - due to its agricultural policy functions, but less than for the country's policy banks. This is because NHB has a large national franchise and legacy policy lending. Unlike policy banks in Korea, NHB does not have a solvency guarantee from the government nor is it owned by the government.

In Fitch's view, the acquisitions reflect that NHFG is becoming more motivated by commercial interests. The more commercially driven NHFG and its subsidiaries are, the lower the probability of extraordinary support from the government for them versus policy banks. Moreover, NACF would become less dependent upon NHB as other subsidiaries make more meaningful contributions to the group.

RATING SENSITIVITIES - IDRs, SR, SRF and senior unsecured debt

NHB's ratings will be reviewed if there is any significant change in the government's propensity to support the bank. Fitch will review the government's propensity to support NHB if its policy role diminishes or NHFG/NHB becomes more commercially driven. The agency will also assess the implications of the ongoing delay in the planned capital injection by the government if it has not occurred by September 2014 - more than two years after it was announced in support of NHFG/NHB's reorganisation. A reduction in government's support propensity may also be evident in a diminishing of NHB's relationship with NACF or the government.

Changes in the sovereign ratings could also trigger a rating review. Global regulatory initiatives aimed at reducing implicit government support available to banks may cause rating review.

The rating actions are as follows:

Long-Term Foreign Currency IDR affirmed at 'A'; Outlook Stable

Short-Term Foreign Currency IDR affirmed at 'F1'

Support Rating affirmed at '1' and

Support Rating Floor affirmed at 'A'

Senior unsecured debt, including GMTN programme, affirmed at 'A'

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