December 14, 2017 / 5:48 AM / 2 years ago

Fitch Places IBK's Basel III AT1 Notes on Rating Watch Positive

(The following statement was released by the rating agency) SEOUL, December 14 (Fitch) Fitch Ratings has placed the 'BB+' rating on Industrial Bank of Korea's (IBK; AA-/Stable) Basel III Additional Tier 1 (AT1) hybrid notes (ISIN US45604GAD16 and US45604HAD98) on Rating Watch Positive. The rating action follows Fitch's publication of <a href="https://www.fitchratings.com/site/re/904081">Exposure Draft: Bank Rating Criteria on 12 December 2017. The exposure draft provides scope for the rating of a hybrid security issued by a policy bank, such as IBK, to be notched from the issuer's Long-Term Issuer Default Rating (IDR) if government support can and will effectively be used to neutralise the security's non-performance risk. The exposure draft also requires that the issue rating be capped at a level based on its IDR category if the security has going-concern loss-absorbing features. KEY RATING DRIVERS The Rating Watch Positive indicates the possibility of an issue rating upgrade on the hybrid notes in the event of applying IBK's 'AA-' Long-Term IDR as the notes' rating anchor, instead of the 'a-' Viability Rating currently. The notes are currently rated four notches below the Viability Rating - two for high loss severity and two for the incremental non-performance risk. The two notches for incremental non-performance risk are lower than the three notches that Fitch would apply to typical Basel III AT1 notes because Fitch believes the management's discretionary coupon omission can be constrained by the sovereign state of South Korea's (AA-/Stable), the policy bank's controlling shareholder and ultimate support provider. RATING SENSITIVITIES The Rating Watch Positive will be resolved after undertaking a full review of the notes' terms and conditions using the final criteria within six months of the final criteria publication. If the final criteria is substantially similar to the exposure draft, Fitch believes the issue rating could be upgraded by up to two notches, reflecting a change in the anchor and a 'BBB' cap. Contact: Matt Choi Associate Director +82 2 3278 8372 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeongdeungpo-Gu Seoul 07327, South Korea Secondary Analyst Heakyu Chang Senior Director +82 2 3278 8363 Committee Chairperson Jonathan Cornish Managing Director +852 2263 9963 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 Exposure Draft: Bank Rating Criteria (pub. 12 Dec 2017) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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