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08 Apr 2002
MOODY'S RAISES RATINGS OF FOUR KOREAN BANKS - KOOKMIN BANK, HANVIT BANK, CHOHUNG BANK & KOREA EXCHANGE BANK - AND PLACES RATINGS OF SIX OTHERS ON REVIEW FOR POSSIBLE UPGRADE.
Singapore, April 08, 2002 -- Moody's Investors Service has raised the long-term senior debt and deposit ratings to A3 from Baa2 and Baa3, respectively, for Kookmin Bank and to Baa2 from Ba1 for Hanvit Bank, Chohung Bank and Korea Exchange Bank. The bank financial strength ratings for all banks remain unchanged. The revised ratings have stable outlooks and are detailed below.
This action concludes the reviews of ratings of Kookmin Bank, which was initiated on February 6, 2002, and of Hanvit Bank, Chohung Bank and Korea Exchange Bank which were initiated on December 11, 2001. The ratings of Kookmin Bank were placed on review in conjunction with the sovereign ratings review. For the other three banks, their ratings were placed on review based on Moody's revised approach to bank ratings in emerging markets, as outlined in Moody's Special Comment "Emerging Market Bank Ratings in Local and Foreign Currency: The Implications of Country Risk and Institutional Support" published in December 2001. The review of ratings of Hana Bank, which were placed on review for possible upgrade on December 11, 2001 in connection with this revised approach, remains pending.
Under our revised bank ratings approach, we have begun to increase the scrutiny of the banks' credit quality in relation to the country's ratings, recognizing the banks' significant size and franchise. The prospect for a very strong institutional support, especially for the banks' local currency deposits, has been more fully incorporated in our analyses. Applying this philosophy to the assessment of Korean banks, Moody's adopts a cautious view towards banks with franchises that are evolving to the extent that their market presence could become increasingly marginalized. Similarly, banks with strong and well-defined franchises need to demonstrate an ability to maintain their competitive positions.
The ratings revisions also reflect the upgrade in Korea's sovereign ratings on March 28, 2002. The foreign currency country ceiling for bonds and notes, bank deposits and local currency government obligations ratings now stand at A3 and the short-term foreign currency country ceiling at Prime-2. The bank ratings adjustments incorporate the continued strong willingness of the Korean government to provide needed support and its increased capacity to do so.
The ratings of these banks, including the bank financial strength ratings, incorporate the positive developments in the Korean banking industry since the 1997 economic crisis. Apart from industry consolidation, which should lead to greater market stability, the banks have undergone massive internal restructuring and reforms that have increased operational efficiencies and improved operating conditions. Moreover, balance sheets have been moderately repaired through the clearing of problem assets and recapitalization. Importantly, management have begun to shift from traditional policy based lending to profit based business models. However, the challenges of fully commercialising the banking operations and creating strong, independent risk management systems remain risk factors for these banks. An additional challenge for these banks is the task of bolstering their still weak financial fundamentals in the face of a continued highly competitive market. Nonetheless, progress in the banking industry, coupled with an improved operating environment provide a platform for banks to regain earnings stability, and eventually a pick-up in profitability.
The upgrade in the ratings of Kookmin Bank reflects its leading position as the largest bank with a dominant retail banking franchise in the Korean banking system. The assets and deposits of the bank account for a third of the system. The bank is also one of the healthier banks in the otherwise fairly weak sector. Moody's believes that its size and franchise ensure a strong regulatory support if required.
Hanvit Bank is also expected to benefit from a strong regulatory support given its position as the second largest bank in the system and its traditionally close government relationship. The bank's franchise is considerable but is still evolving, as is its organizational structure. Since the economic crisis, the financial performance of the bank has been relatively volatile.
In the case of third biggest bank, Chohung Bank, it benefits from its legacy as the oldest bank in Korea and its government relationship. Despite a moderately smaller franchise, the bank enjoys healthy net interest margins through its base of lower costing deposits.
Lastly, Korea Exchange Bank is a large bank which was established by the government to serve as a specialized foreign exchange bank. The bank continues to retain its strong trade finance and foreign exchange franchise but suffers considerably from exposures to many troubled corporate borrowers. The government still holds a significant 43% stake in the bank, suggesting the high likelihood of regulatory aid in times of need.
At the same time, the rating agency is reviewing for possible upgrade the long-term senior debt and deposit ratings of Baa3 for Shinhan Bank, Ba1 for Korea First Bank and Ba3 for SeoulBank. It is also reviewing the long-term deposit ratings of Ba2 for KorAm Bank and Ba3 for Daegu Bank and Pusan Bank. The ratings are detailed below.
These reviews will take into consideration the revised approach to bank ratings in emerging markets mentioned above, as well as improved sovereign support capacity.
The following ratings were affected:
Kookmin Bank: the senior/subordinated debt ratings were raised to A3/Baa1 from Baa2/Baa3 and the long-term/short-term deposit ratings to A3/Prime-2 from Baa3/Prime-3. The bank financial strength rating of D+ is unchanged. The ratings outlook is stable.
Hanvit Bank: the senior/subordinated debt ratings were raised to Baa2/Baa3 from Ba1/Ba2 and the long-term/short-term deposit ratings to Baa2/Prime-3 from Ba1/Not Prime. The bank financial strength rating of E+ is unchanged. The ratings outlook is stable.
Chohung Bank: the senior/subordinated debt ratings were raised to Baa2/Baa3 from Ba1/Ba2 and the long-term/short-term deposit ratings to Baa2/Prime-3 from Ba1/Not Prime. The bank financial strength rating of E+ is unchanged. The ratings outlook is stable.
Korea Exchange Bank: the senior/subordinated debt ratings were raised to Baa2/Baa3 from Ba1/Ba2 and the long-term/short-term deposit ratings to Baa2/Prime-3 from Ba1/Not Prime. The bank financial strength rating of E+ is unchanged. The ratings outlook is stable.
The following ratings were placed on review for possible upgrade:
Shinhan Bank: the senior/subordinated debt ratings of Baa3/Ba1 and the long-term/short-term deposit ratings of Baa3/Prime-3. The bank financial strength rating of D+ is unaffected.
KorAm Bank: the subordinated debt rating of Ba3 and the long-term/short-term deposit ratings of Ba2/Not Prime. The bank financial strength rating of D- is unaffected.
Korea First Bank: the senior/subordinated debt ratings of Ba1/Ba2 and the long-term/short-term deposit ratings of Ba1/Not Prime. The bank financial strength rating of D is unaffected.
SeoulBank: the senior/subordinated debt ratings of Ba3/B2 and the long-term/short-term deposit ratings of Ba3/Not Prime. The bank financial strength rating of E+ is unaffected.
Daegu Bank: the long-term/short-term deposit ratings of Ba3/Not Prime. The bank financial strength rating of E+ is unaffected.
Pusan Bank: the long-term/short-term deposit ratings of Ba3/Not Prime. The bank financial strength rating of E+ is unaffected.
The following ratings remain on review for possible upgrade:
Hana Bank: the senior debt rating of Ba2 and the long-term/short-term deposit ratings of Ba2/Not Prime. The bank financial strength rating of D- is unaffected.
No Related Data.
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