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March 25 (The following statement was released by the rating agency)
Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Rating (IDR) of Korea-based Woori Finance Holdings (WFH) at 'BBB+' and revised the Outlook to Positive from Stable. The agency has simultaneously withdrawn the ratings on WFH as they are no longer considered by Fitch to be relevant to the agency's coverage. Fitch will no longer provide ratings or analytical coverage of WFH. A full list of rating actions is at the end of this commentary.
The revision of Outlook to Positive from Stable reflects the agency's expectation that WFH's Long-Term Foreign Currency IDR would ultimately be Woori Bank's (A-/Stable), the flagship bank subsidiary of WFH, as the Korean government plans to reorganise and sell the bank holding company in the short- to medium-term.
As part of the government's plan to sell its controlling stake (57%) in WFH, the bank holding company will spin-off its regional bank subsidiaries, Kyongnam Bank and Kwangju Bank, and sell non-bank operations including Woori Investment & Securities. After the spin-offs and sales, the only meaningful businesses that WFH will have are Woori Bank and Woori Card, which will be merged with WFH to become a new Woori Bank.
KEY RATING DRIVERS AND SENSITIVITES - IDRS, SR, and SRF
WFH's IDRs are backed by the IDRs of its flagship bank subsidiary, Woori Bank. The latter reflect Fitch's belief of an extremely high propensity of extraordinary support from the South Korean government (AA-/Stable), if needed. WFH's Long-Term IDR, Support Rating (SR) and Support Rating Floor (SRF) are one notch lower than Woori Bank's. This is because WFH will only benefit from the government ownership/control and support if such support is directed at its subsidiary banks. The agency believes that the key objective of the regulatory framework is to protect depositors at the subsidiary banks and ensure their viability.
The planned sales and spin-offs of non-core businesses and merger with Woori Bank will ultimately lead to an upgrade of WFH's ratings. Any change in Woori Bank's ratings will directly affect WFH's ratings.
A change in the ability of the Korean authorities to provide support may result in a change in these ratings. Global regulatory initiatives aimed at reducing implicit government support available to banks may cause downward pressure on the ratings.
KEY RATING DRIVERS AND SENSITIVITES - VR
WFH's Viability Rating (VR) is also one notch lower than Woori Bank's to reflect the holding company's high double leverage, and the weaker credit profile of other subsidiaries, including the regional banks and brokerage operation, relative to Woori. Its common-equity double leverage ratio has been high at 128% for years.
The planned sales and spin-offs of non-core businesses and merger with Woori Bank will ultimately lead WFH's VR to be upgraded. Any change in Woori Bank's VR will directly affect WFH's.
The rating actions are as follows:
Woori Finance Holdings
Long-Term Foreign-Currency IDR affirmed at 'BBB+' and withdrawn; Outlook Revised to Positive from Stable
Short-Term Foreign-Currency IDR affirmed at 'F2' and withdrawn
Viability Rating affirmed at 'bbb-' and withdrawn
Support Rating affirmed at '2' and withdrawn;
Support Rating Floor affirmed at 'BBB+' and withdrawn;