(Repeat for Additional Subscribers)
June 7 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Korea-based Woori Bank's (Woori) Long-Term Foreign-Currency Issuer
Default Ratings (IDR) at 'A-'.
The Outlook is Stable. Fitch has also affirmed Woori's Viability Rating (VR) at
'bbb'. A full rating breakdown is provided below.
KEY RATING DRIVERS AND SENSTIVITIES - IDRs, Support Rating and Support Rating
Floor Woori's IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's
continued belief of an extremely high propensity of the South Korean government
(AA-/Stable) to support Woori, if required. This view is based on Woori's
systemic importance as one of the major commercial banks in South Korea and the
government's majority ownership through Korea Deposit Insurance Corporation
(KDIC). Being the second-largest bank in Korea, Woori holds 13% and 15% of the
banking system's total assets and deposits respectively.
A substantial reduction of the government's stake (or an M&A) may trigger a
rating review for Woori's state support-driven ratings. The government has
attempted to sell Woori for a decade but has failed to do so.
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
KEY RATING DRIVERS AND SENSTIVITIES - VR
Woori's 'bbb' VR reflects its strong local franchise, its adequate
capitalisation and margins, and the sound ordinary support/supervision from
Korea's authorities. It also takes into account the bank's weak risk management
practices, which are not fully reflected in its headline loan quality metrics.
Another key factor determining Woori's VR is the bank's structural weakness in
its funding/liquidity profile, particularly in foreign currency.
Woori's long-term underlying profitability is weakening due to various
regulatory-driven costs and continued social and political pressure on the
margins and fees of Korean financial institutions. Net interest margin (NIM) has
been contracting due to declining interest rates. That said, its regulatory NIM
(1.9% in 2012) adjusted for the credit card operation that was spun-off on 1
April 2013 is below than the system average (2.1%).
Its precautionary-and-below loans ratio (PBL; 4.7% at end-Q113) is noticeably
weaker than the industry average (about 3.7%). The share of loans that are not
backed by either collateral or guarantee (49% at end-2012) was worse than the
system average (about 43%).
Woori faces some concentration risk arising from its lending to large
corporates, particularly in view of the fact that many large companies have
survived the global financial crisis on extensive government support. It loan
book carries large exposures to weak property developers, shipbuilders and
Although somewhat volatile, Woori's loans/customer deposits ratio has improved
slightly in 2012 to 122%, compared with 126% at end-2011. Woori's retail
deposits/total deposits has improved to 34% at end-2012 from 31% at end-2008.
Like its local peers, Woori depends highly on foreign-currency wholesale
funding; however, it has ensured that foreign-currency lending is funded by
long-term maturity debts, as per regulatory guidance.
Woori's Fitch core capital ratio was further strengthened to 11.4% at end-Q113.
Fitch expects Woori to meet the Basel III capital requirements without
difficulties when they are implemented in Korea at end-2013. It is highly likely
that Woori will be designated a "domestic systemically important bank" (D-SIB)
in Korea by the regulator.
A substantial and sustainable improvement in its loan quality and risk
management, or foreign currency funding/liquidity profile may offer upside
potential for Woori's VR.
A significant loan quality deterioration causing noticeable erosion in its
capitalisation may cause a downgrade of its VR.
KEY RATING DRIVERS AND SENSTIVITIES - Senior Unsecured Debt
The rating of senior unsecured debt is aligned with the bank's Long-Term IDR.
Any change in the IDR will be reflected in the rating of the debt.
KEY RATING DRIVERS AND SENSTIVITIES - Subordinated Debt and Hybrid securities
The 'BBB-' rating for its legacy lower tier 2 subordinate debt is one notch
below Woori's VR, and reflects below-average loss severity (one notch) and
minimal non-performance risk (no notch). The securities have gone-concern loss
absorption features and no coupon payment flexibility.
The 'BB-' rating for Woori's hybrid securities is four notches below the bank's
VR, in line with Fitch's criteria, to reflect their high loss severity (two
notches) and non-performance risk (two notches). The legacy hybrid tier 1
capital securities have limited flexibility over coupon payments despite its
going-concern loss absorption features.
The subordinate debt and hybrid ratings are likely to move in line with the VR
of the bank.
KEY RATING DRIVERS AND SENSTIVITIES - National rating
Woori's 'AAA(tha)' senior unsecured issue rating is the highest on Thailand's
National rating scale. The rating is likely to move in line with the bank's
Woori's ratings are as follows.
Long-Term Foreign Currency IDR affirmed at 'A-'; Stable Outlook
Short-Term Foreign Currency IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A-'
Senior unsecured debt affirmed at 'A-'
Subordinate debt affirmed at 'BBB-'
Hybrid securities affirmed at 'BB-'
Senior unsecured THB-denominated debt affirmed at 'AAA(tha)'