(Repeat for additional subscribers)
June 7 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Korea-based Shinhan Card Co's (SHC) Long- and
Short-Term Issuer Default Ratings (IDRs) at 'A-' and 'F2'. The Outlook is Stable. Fitch has also
affirmed SHC's Support Rating at '1'.
Key Rating Drivers
The affirmation of SHC's ratings reflect Fitch's continued belief of an
extremely high probability of support for SHC from its sole owner, Shinhan
Financial Group (SFG). SFG is South Korea's third-largest financial group by
total assets (KRW300trn at end-2012), and Shinhan Bank (SHB, 'A'/Stable) is its
However, SFG itself does not have a very strong ability on a stand-alone basis
(with a high common-equity double leverage ratio of 137% at end-Q113) to support
SHC. So, Fitch takes into account potential support from SHB for the card
SHC is very important to the group's strategy and core commercial banking
operations. Although it accounts for just 7% of the group's consolidated total
assets, SHC contributes 25%-30% of SFG's net profit. Moreover, SHC has a
slightly larger customer base than SHB and thus contributes significantly to the
With a 21% share of total credit card transactions in 2012, SHC is the largest
player in South Korea. It has over 15 million cardholders and they represent
about 90% of South Korea's pool of potential credit card customers.
Fitch expects the profitability of Korea's credit card operators, including SHC,
to weaken significantly in the medium term. A new scheme on the interest rates
charged on loan products that might be introduced in late 2013 will further
reduce profitability which was cut by about 15% due to the new merchant fee rule
introduced in 2012. Its operating return on assets was 3.9% (exclusive of
one-off gains) in 2012.
SHC has been prudent in lending, particularly since the global credit crisis in
2008. Risky assets (cash advances, card loans and revolving loans) as a share of
SHC's total credit card receivables have declined by 6pp over the four years to
end-2012. Like its peers, its precautionary-and-below loans have doubled in Q412
due to the new regulatory guideline on the risky revolving-facility borrowers.
Fitch expects the quality of SHC's receivables to continue to deteriorate due to
the increasing use of debit/cheque cards and the weakening debt-servicing
ability of South Korean households amid rising household debt and a slowing
economy. At end-2012, SHC's delinquency (one-month overdue) rate was 2.6%
Due to the sizable credit-purchase receivables that are collected within a few
months and to the increasing demand for the long-term papers from the local
pension funds, SHC and its local peers have benefited adequate liquidity.
That said, SHC's completely wholesale-based funding profile is vulnerable to
capital market volatility and deterioration in consumer debt-servicing
capability. However, SHC's debt maturity was reasonably well spread (28% in less
than a year, 23% in one to two years, 27% in two to three years, and the
remaining 22% over three years) with an average maturity of two years at
end-2012. SHC benefits from liquidity support from the group and SHB.
SHC had a tangible common equity ratio of 25% at 2012. Given that SHC is SFG's
main source of cash generation, Fitch expects SHC's dividend payout ratio to
remain high, at 50%-60%. Fitch expects SHC to maintain its strong capitalisation
Any change to SHB's ratings would directly affect the credit card company's