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Fitch Affirms Korea's Four Key Policy Banks at 'AA-'
August 29, 2014 / 6:41 AM / 3 years ago

Fitch Affirms Korea's Four Key Policy Banks at 'AA-'

(The following statement was released by the rating agency) SEOUL/HONG KONG, August 29 (Fitch) Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Ratings (IDRs) on Korea Development Bank (KDB), Korea Finance Corporation (KoFC), Export-Import Bank of Korea (KEXIM), and Industrial Bank of Korea (IBK) at 'AA-'. The Outlooks are all Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS - IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The Long-Term and Short-Term IDRs of the key policy banks are equalised with South Korea's sovereign ratings (AA-/Stable/F1+) to reflect the government's de-facto solvency guarantees and its commitment to its controlling or strategic stakes in the banks in light of the importance of their policy roles in the system. The Support Ratings of '1' and Support Rating Floors at 'AA-' reflect Fitch's expectations of extremely high probability of government support, if needed. The government is legally obliged to cover the key policy banks' losses should their capital reserve funds fail to do so, as per their respective establishing Acts (Article 31 of KoFC Act; Article 44 of KDB Act; Article 37 of KEXIM Act; and Article 43 of IBK Act). The Stable Outlook reflects the Outlook on South Korea's sovereign rating as well as Fitch's expectation that the government's ability and propensity to support the policy banks on a timely basis, if required, will not change in the medium term. KDB is effectively wholly owned by the government through its parents KDB Financial Group and KoFC. Its key policy roles include bailing-out or restructuring troubled or failed corporates, funding foreign currency for the system, and financing long-term social-infrastructure projects. KoFC has been directly wholly owned by the government since it was spun off from KDB in late 2009. It focuses on extending policy loans to small and medium enterprises (SMEs) via lending to mainly commercial banks, IBK and KDB. Under the new KDB Act, which was passed in May 2014 and takes effect on 1 January 2015, KDB, KDB Financial Group and KoFC will be merged to form a new KDB. This will reverse the process started in 2009 to privatise KDB. The main protection for debt holders, the solvency guarantee from the government, remains in the new KDB Act. KEXIM is effectively 100%-owned by the state (70.1% directly, 15.0% through Bank of Korea, and 14.9% through KoFC). Its key policy functions are long-term trade and overseas project financing, and funding foreign currency for the system. IBK is 58.4%-owned by the state (55.0% directly, 1.9% through KoFC and 1.5% through KEXIM). IBK's key policy role is to extend credit to SMEs. The four banks' important policy roles and the government's commitment to maintain a controlling stake in them are underscored by the government's plan to realign the state's policy financial institutions announced in August 2013, the new KDB Act in May 2014 and the role of the banks in the government's expansionary economic measures announced in July 2014. Moreover, the government has a very strong track record of injecting capital to the policy banks whenever they were in need, either for growth or to meet policy requirements. RATING SENSITIVITIES - IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The ratings would be directly affected by changes to South Korea's sovereign ratings. Negative action may also result if there is a significant change to the importance of each banks' policy role or evidence that the government is not committed to a controlling/strategic stake, which in turn could lead to a change in or removal of the solvency guarantee. This appears unlikely. The ratings on the key policy banks would be reviewed if the government does not provide capital support in a timely manner. KEY RATING DRIVERS AND SENSITIVITIES - Senior Unsecured Debt The ratings on the banks' senior unsecured debt are aligned with the banks' IDRs. Any change in the IDRs will be reflected in the debt ratings. KDB New York branch's commercial paper programme has been affirmed at 'F1+', in line with KDB's Short-Term IDR. Any change to KDB's Short-Term IDR will affect the rating on the commercial paper programme rating directly. KEY RATING DRIVERS AND SENSITIVITIES - IBK's National Rating The 'AAA(tha)' rating on IBK's Thai baht-denominated senior unsecured debts is based on IBK's Long-Term Foreign Currency IDR of 'AA-', which is higher than Thailand's Long-Term Local Currency IDR of 'A-'. The 'AAA(tha)' rating on IBK's Thai baht-denominated senior unsecured debts is the highest on the National scale, hence, there is no further upside. A downgrade of IBK's Thai baht senior debt is unlikely in the short to medium term as IBK's Long-Term Foreign Currency IDR is unlikely to fall below Thailand's Long-Term Local Currency IDR given the current multiple notch rating differential and their Stable Outlooks. The rating actions are as follows: KDB Long-Term Foreign Currency IDR affirmed at 'AA-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'F1+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'AA-' Senior unsecured debt and global medium-term note (GMTN) programme affirmed at 'AA-' Short Term debt, US CP programme and GMTN programme affirmed at 'F1+' KDB New York branch commercial paper programme affirmed at 'F1+' KoFC Long-Term Foreign Currency IDR affirmed at 'AA-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'F1+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'AA-' Senior unsecured debt and GMTN programme affirmed at 'AA-' Short-term debt and GMTN programme affirmed at 'F1+' KEXIM Long-Term Foreign Currency IDR affirmed at 'AA-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'F1+' Long-Term Local Currency IDR affirmed at 'AA'; Outlook Stable Support Rating affirmed at '1' Support Rating Floor affirmed at 'AA-' Senior unsecured debt affirmed at 'AA-' Euro medium-term note (EMTN) programme rating affirmed 'AA-' IBK Long-Term Foreign Currency IDR affirmed at 'AA-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'F1+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'AA-' Senior unsecured debt affirmed at 'AA-' Senior unsecured Thai baht-denominated debt affirmed at 'AAA(tha)' Contact: Primary Analyst Heakyu Chang Director +82 2 3278 8363 Fitch Australia Pty Ltd, Korea Branch 9F, 97 Uisadang dae-ro Youngdeungpo-gu Seoul 150-737 Korea Patchara Sarayudh (IBK's Thai baht debt) Director +662 108 0152 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road, Lumpini Patumwan, Bangkok 10330 Secondary Analyst Jonathan Cornish Managing Director +852 2263 9901 Jindarat Laotaveerungsawat (IBK's Thai baht debt) Associate Director +662 108 0153 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, and "National Scale Ratings Criteria", date 30 October 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings 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 FREE WEB SITE AT 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. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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