September 5, 2014 / 7:15 AM / in 3 years

Fitch Affirms Korea Housing Finance Corporation at 'AA-'/Stable

(The following statement was released by the rating agency) HONG KONG/BARCELONA, September 05 (Fitch) : Fitch Ratings has affirmed Korea Housing Finance Corporation's (KHFC) Long-Term Issuer Default Rating (IDR) at 'AA-' and Short-Term IDR at 'F1+'. The Outlook on the Long-Term IDR is Stable. KEY RATING DRIVERS KHFC's ratings are equalised with the ratings of Korea (AA-/Stable/F1+) due to its public sector status, ownership by the state, the government's strong control over the entity and KHFC's strategic ties with the state, which result in a strong likelihood of extraordinary state support, in case of need. Fitch has classified KHFC as a dependent public sector entity. Fitch has applied a top-down approach in its analysis of KHFC. KHFC is 100% owned by the state, and closely controlled and supervised by the government. It reports to the Ministry of Strategy and Finance and is supervised by Korea's financial regulator, the Financial Services Commission (FSC). Its president, who is appointed by the government, works as a public servant attached to the FSC. Its auditor is also recommended and appointed by the government. KHFC has a mandate to facilitate access to housing finance for low- and middle-income earners in South Korea. The government policy requiring Korean financial institutions to raise fixed-rate amortising mortgage loans to 30% of their outstanding portfolios by end-2016 enhances KHFC's policy role. It is widely expected to take a leading role in providing funding to achieve this target. Article 51 of the KHFC Act requires the state government to replenish the entity's deficits when KHFC's own reserves are not sufficient to absorb losses. State support is also evidenced by the government's capital injections in 2012 and 2013, which helped the entity to meet its regulatory required capital adequacy ratio of 8%. KHFC's strong liquidity and funding status is backed by its strong reputation in both the domestic and international capital markets. Its funding channels are also well-diversified, including mortgage-backed securitisation, covered bonds, senior unsecured bonds, and commercial paper. KHFC suffers from funding mismatch as its loan portfolio has maturities ranging from 10 to 30 years but it is funded by commercial paper and bonds with relatively short tenors. Nevertheless, the mismatch is partly mitigated by the entity's continuing securitisation of its mortgage loan portfolio and shorter effective mortgage tenor due to Koreans' tendency for early loan repayment. RATING SENSITIVITIES A positive rating action on the sovereign, in conjunction with continued strong support from the state, would result in a similar change in KHFC's rating. A downgrade of Korea's ratings, significant changes that result in a dilution in state ownership and state control, or weakening in KHFC's links with the government, including the importance of the entity's public policy role and budgeting relationship, could trigger a downgrade. This is because KHFC, under such circumstances, would no longer be classified as a dependent public sector entity and, therefore, no longer be credit-linked to the sovereign rating. Contacts: Primary Analyst Terry Gao Director +852 2263 9972 Fitch (Hong Kong) Limited 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8407 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities - Outside the United States', dated 4 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating of Public Sector Entities - Outside the United States - Effective from 4 March 2013 to 4 March 2014 here Tax-Supported Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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