August 19, 2014 / 6:06 AM / 3 years ago

Fitch Rates Indonesia's KEB Hana 'AAA(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA/SYDNEY, August 19 (Fitch) Fitch Ratings has assigned Indonesia-based PT Bank KEB Hana Indonesia (KEB Hana) a National Long-Term Rating of 'AAA(idn)' and a National Short-Term Rating of 'F1+(idn)'. The Outlook is Stable. 'AAA' National Ratings denote the highest rating assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. 'F1' National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating. KEY RATING DRIVERS The ratings on KEB Hana are based on Fitch's assessment of a high propensity of support, should it be needed, from its Korea-based parents, Hana Bank (A-/Stable) and Korea Exchange Bank (KEB; A-/Stable), which are wholly owned by Hana Financial Group (HFG). Fitch assesses KEB Hana as strategically important to Hana Bank and KEB given their combined 87.2% ownership, name association, technical assistance in risk management, stand-by liquidity assistance, capital injections in the past and appointment of key personnel from both parents to KEB Hana's management board. KEB Hana is important to its parents' goal of developing business growth in emerging Asian countries, particularly Indonesia. Nevertheless, its contributions to its parents' assets and profits remain small at the moment. KEB Hana's loan portfolio is made up mainly of commercial loans extended to Indonesian and Indonesia-based Korean companies. The loans are diversified across economic sectors, but fairly concentrated by size with the 20 largest loans accounting for 38% of total gross loans at end-1H14. The bank maintained its asset quality in 1H14, even though it expanded its loan book aggressively in the past few years. KEB Hana's profitability was satisfactory in 1H14. However, Fitch believes that profitability is likely to come under pressure amid the challenging operating environment, with heightened competition, higher funding cost and potentially higher credit cost. KEB Hana's loan to deposit ratio remained high at 126% at end-1H14 and it was notably above the industry average due to a weaker funding franchise, limited distribution network and rapid loan growth. Fitch expects the bank to rely on loans from its shareholders to support funding. KEB Hana's capital position is strong, but this is mainly underpinned by capital support from its parents while its internal capital generation is weak. Hana Bank injected capital into the Indonesian subsidiary in 2010 and 2012 to support the bank's business growth. RATING SENSITIVITIES Any perceived weakening of support from or significant dilution in ownership by its parents, Hana Bank and KEB, could exert downward pressure on KEB Hana's National Ratings. The ratings are already at the top end of the scale. Contacts: Primary Analyst Ira Febrianty Analyst PT Fitch Ratings Indonesia Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 +62 21 2988 6810 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, and "National Scale Ratings Criteria", dated 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 PUBLIC WEBSITE '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.

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