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June 7 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Korea-based Woori Finance Holdings’ (WFH) Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB+'. The Outlook is Stable. Fitch has also affirmed WFH’s Viability Rating (VR) at ‘bbb-'. A full rating breakdown is provided below.
KEY RATING DRIVERS AND SENSTIVITIES - IRDs, Support Rating and Support Rating Floor WFH’s IDRs are backed by its flagship bank subsidiary Woori Bank’s (A-/Stable) IDRs. The latter reflect Fitch’s belief of an extremely high propensity of the South Korean government (AA-/Stable) to support Woori Bank.
The government owns a 57% stake in WFH through Korea Deposit Insurance Corporation (KDIC). The holding company wholly owns Woori Bank and two regional banks. It also has non-bank financial subsidiaries. It does not have any direct banking operations.
WFH’s Long-Term IDR, Support Rating, Support Rating Floor 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, and ensure the viability of, subsidiary banks.
A substantial reduction of the government’s stake may trigger a negative rating action on WFH’s state support-driven ratings. The government has attempted to sell the controlling stake in the holding company 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 the ratings.
WFH’s 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% level for years. Fitch does not expect the leverage to improve significantly. The holding company cannot offer new rights issue because KDIC cannot inject new capital into WFH. KDIC can inject capital only to a failed bank as per its governing laws. As such, WFH has relied on debt funding to support its subsidiaries, to expand and to meet its own cash flows, therefore weakening its leverage.
A change to the flagship bank subsidiary’s VR or a significant change in the double leverage would directly affect the holding company’s VR. WFH’s ratings are:
Long-Term Foreign-Currency IDR affirmed at ‘BBB+'; Stable Outlook
Short-Term Foreign-Currency IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bbb-’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB+'