Hong Kong, April 02, 2012 -- Moody's Investors Service has revised the outlook for the foreign currency
long-term senior unsecured debt ratings of six Korean Government-related
financial institutions to positive from stable.
The six entities are: Export-Import Bank of Korea (KEXIM),
Industrial Bank of Korea (IBK), Korea Finance Corporation (KoFC),
Korea Housing Finance Corporation (KHFC), Korea Development Bank
(KDB), and Korea Student Aid Foundation (KOSAF).
The rating actions follow Moody's revision of the outlook for Korea's
sovereign ratings to positive from stable on 2 April 2012. Please
see the related press release for more information on sovereign issues.
RATINGS RATIONALE
The outlook for the foreign currency long-term senior unsecured
debt ratings of the six institutions was revised to positive as Moody's
expects the government to support these entities in a timely manner,
if needed, given their strong linkage with the government.
These entities are not only important policy arms of the government,
but also benefit from certain forms of explicit government support.
KEXIM, IBK, KoFC, and KHFC benefit from their individual
charters, which hold the government legally responsible for replenishing
deficits if their reserves are insufficient to cover their annual losses.
Although the deficit replenishment clause is not as strong as a payment
guarantee in terms of certainty for debt repayment, we take comfort
from the fact that the government has already preemptively provided them
with capital to maintain capital adequacy.
For KOSAF, the government continues to provide guarantees for most
of its debt, which would significantly increase the government's
incentive to support unguaranteed debt instruments due to the reputation
risk to the government.
For KDB, the outlook on its A1 long-term foreign currency
senior unsecured debt is revised to positive, as Article 18-2
(1) of the KDB Act requires the government to provide explicit guarantees
for the debt within the limit set by the National Assembly at the point
that the government sells any share in KDB Financial Group, parent
of KDB. However, its deposits continue to have a negative
outlook, reflecting the potential privatization of the bank,
since deposits would not benefit from these explicit guarantees that would
be triggered by a privatization.
REPOSITIONING OR ASSIGNMENT OF BASELINE CREDIT ASSESSMENT
Moody's has repositioned the stand-alone baseline credit
assessment (BCA) of KEXIM to 11(Ba1) from 7(A3) as it better reflects
its standalone credit profile. Moody's has also assigned
an 11(Ba1) BCA to both KHFC and KoFC to enhance the overall transparency
of their ratings as the two institutions had not previously been assigned
BCAs.
The BCAs reflect the intrinsic financial strengths of the three institutions.
These strengths include ordinary and ongoing support from the government,
but do not incorporate any form of external extraordinary support which
the institutions may receive. The BCA indicates Moody's opinion
on the likelihood of these entities requiring extraordinary support.
In deciding BCAs for the three institutions, Moody's applied
the overall analytical framework explained in the Finance Company Global
Rating Methodology (March 2012) as a reference. In addition,
Moody's considered other benefits that these institutions are currently
enjoying. For example, these institutions enjoy very good
access to the debt capital markets due to their reputation as government
agencies. Nonetheless, as wholesale funded entities without
a deposit franchise, their intrinsic liquidity is modest and this
is a factor that negatively affects their BCAs.
Moody's repositioned KEXIM's BCA, as its previous BCA
of A3 incorporated the likelihood of extraordinary support from the government.
Therefore, the main drivers of its Ba1 BCA are modest levels of
profitability which have been relatively stable through credit cycles,
good asset quality, high credit concentration risk and a reliance
on wholesale funding. Moreover, KEXIM's relatively
weak earnings have meant that it has required frequent capital injections
from the government to support its balance sheet growth. While
Moody's views this positively from the perspective of government
support, this periodic need for external capital injections is a
factor that weighs negatively on the BCA.
The Ba1 BCA for KHFC also reflects modest levels of profitability,
the good quality of its mortgage assets, the inherent challenges
of hedging the embedded interest rate risk in its loan book and a reliance
on wholesale funding.
KoFC's BCA reflects relatively high asset weighting in equities
and its reliance on wholesale funding, offset by its relatively
strong capital cushion.
Moody's does not assign a BCA for KOSAF, as most of its debt
carries a government guarantee and its financials are so weak that it
is hard to measure its standalone credit profile.
The resultant ratings and actions are listed below:
KEXIM -- The ratings whose outlook was revised to positive
are: foreign currency long-term senior unsecured debt of
A1; and foreign currency long-term senior unsecured MTNs/senior
unsecured shelf of (P)A1/(P)A1. Its BCA was repositioned to Ba1
from A3. All other ratings were unaffected: foreign currency
commercial paper of Prime-1.
IBK -- The ratings whose outlook was revised to positive
are: foreign currency long-term senior unsecured debt/deposit
of A1/A1, and foreign currency long-term senior unsecured/subordinated/junior
subordinated MTNs of (P)A1/(P)A2/(P)A2. The D+ BFSR,
mapping to a BCA of baa3, was unaffected and continues to carry
a stable outlook. The rating on the foreign currency short-term
deposit/commercial paper of Prime-1/Prime-1 was affirmed.
KDB -- The ratings whose outlook was revised to positive
are: foreign currency long-term senior unsecured debt/senior
unsecured MTN/ senior unsecured shelf of A1/(P)A1/(P)A1. The ratings
whose outlook remains negative due to privatization risks are: local
and foreign currency long-term deposits of A1. The D BFSR,
mapping to a BCA of ba2, was unaffected and continues to carry a
stable outlook. All other ratings were unaffected: foreign
and local currency short-term deposits of Prime-1,
and foreign currency commercial paper of Prime-1.
KoFC -- The ratings whose outlook was revised to positive
are: foreign currency long-term issuer of A1, foreign
currency long-term senior unsecured debt/senior unsecured MTN of
A1/(P)A1. A BCA of Ba1 was assigned. All other ratings were
unaffected: foreign currency short-term issuer/commercial
paper of Prime-1/Prime-1.
KHFC -- The rating whose outlook was revised to positive
is the foreign currency long-term issuer rating of A1. A
BCA of Ba1 was assigned. The foreign currency short-term
issuer rating of Prime-1 was unaffected.
KOSAF -- The rating whose outlook was revised to positive
is the foreign currency long-term issuer rating of A1. The
foreign currency short-term issuer rating of Prime-1 was
unaffected.
PRINCIPAL METHODOLOGIES
The principal methodologies used in rating IBK and KDB were Bank Financial
Strength Ratings: Global Methodology published in February 2007,
and Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
Global Methodology published in March 2012. The principal methodology
used in rating KEXIM, KoFC, KHFC, and KOSAF was Government-Related
Issuers: Methodology Update published in July 2010. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
All 6 entities are headquartered in Seoul. Below are details of
their assets as of 30 September 2011:
KEXIM: KRW54.1 trillion (USD45.9 billion); IBK:
KRW150.9 trillion (USD127.9 billion); KDB: KRW153.1
trillion (USD130 billion) on consolidated basis; KOSAF: KRW6.6
trillion (USD5.6 billion); KoFC: KRW64.2 trillion
(USD54.5 billion) on unconsolidated basis; and KHFC:
KRW4.9 trillion (USD4.2 billion).
REGULATORY DISCLOSURES
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Young Il Choi
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's revises outlook for six Korean Government-related financial institutions to positive
