Hong Kong, July 08, 2019 -- Moody's Investors Service has affirmed the Aa2 foreign currency
and local currency deposit ratings of KDB Asia Ltd.
The ratings outlook is stable.
A list of all affirmed ratings and assessments can be found at the end
of this press release.
RATINGS RATIONALE
The Aa2 long-term foreign-currency and local currency deposit
ratings of KDB Asia reflect (1) its baseline credit assessment (BCA) and
Adjusted BCA of ba2; (2) two notches of uplift from Moody's
Loss Given Failure (LGF) analysis, given the uplift provided by
the volume of long-term borrowing from its parent Korea Development
Bank (KDB, Aa2 stable, ba2); and (3) seven notches of
uplift based on Moody's assessment of a government-backed
level of support from the Korea government (Aa2 stable), which will
flow through Korea Development Bank (KDB), in times of need.
Moody's government support assumption considers (1) KDB Asia's
strategic importance to KDB's business in Asia; (2) the track
record of timely capital injections from KDB; and (3) Article 32
of the KDB Act, which sets out the government's obligation to replenish
any deficit should KDB's reserves prove insufficient. Although
Article 32 of the KDB Act does not cover KDB Asia in strictly legal terms,
Moody's nevertheless believes a government-backed level of
support is appropriate since KDB's capitalization consolidates KDB
Asia, and in light of the reputational risk to both entities as
they share the KDB name and are both heavily reliant on market funding.
KDB Asia's BCA of ba2 reflects its parent's BCA, as well as KDB
Asia's links with its parent.
Moreover, the ba2 BCA incorporates (1) the change in its macro profile
to Strong- from Strong, to reflect its increasing loan exposures
outside of Hong Kong and Korea, with for example China loans growing
to 20% of total loans as of December 2018 from 9% as of
December 2017; (2) the bank's high double digit loan growth,
but with risks mitigated by syndicated loans to corporates with high credit
ratings; (3) the bank's solid capitalization which Moody's
expects will be maintained despite the strong asset growth resulting from
the capital injections from KDB; (4) the bank's high reliance
on interbank borrowing and CD issuance, with about 40% of
its funding comprising long-term borrowing from KDB, which
Moody's views as a stable sources of funding; and (5) the bank's
strong liquidity.
KDB Asia expects to receive USD100 million in equity capital injections
from KDB in 3Q 2019, and plans to maintain its total capital adequacy
ratio above 20%.
WHAT COULD MOVE THE RATINGS -- UP/DOWN
KDB Asia's ratings may be upgraded if its parent's long-term
debt and deposit ratings are upgraded. KDB's long-term debt
and deposit ratings could be upgraded if (1) Korea's sovereign rating
is upgraded; and (2) the deficiency guarantee in the KDB Act remains
in force. The deficiency guarantee in the KDB Act requires the
government to replenish any deficit if KDB's reserves prove insufficient
to absorb annual net losses.
For KDB Asia, any changes in its liability structure and the resulting
changes to the LGF-based uplift will not impact its deposit rating,
because the government-backed level of support Moody's assumes
for KDB Asia will result in its deposit rating being rated at the same
level as that of KDB.
KDB Asia's ratings may be downgraded if (1) KDB's long-term
debt and deposit ratings are downgraded (since KDB Asia's operations are
closely linked with those of its parent and because the bank relies on
funding from KDB, a repositioning of its parent's BCA would directly
affect KDB Asia's BCA); (2) the bank's business deteriorates or its
operations become less aligned with those of KDB; or (3) KDB Asia
becomes less strategically important to KDB.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
KDB Asia Ltd. is headquartered in Hong Kong. It reported
assets of USD1,748 million as of year-end 2018.
List of ratings affirmed:
BCA and adjusted BCA affirmed at ba2
Long-term foreign currency and local currency deposit ratings affirmed
at Aa2 with stable outlook
Long-term foreign currency and local currency deposit Note/CD Program
ratings affirmed at (P)Aa2
Long-term foreign currency deposit note/CD rating affirmed at Aa2
with stable outlook
Long-term counterparty risk assessment affirmed at Aa2(cr)
Long-term foreign currency and local currency counterparty risk
ratings affirmed at Aa2
Short-term foreign currency and local currency counterparty risk
ratings affirmed at P-1
Short-term foreign currency and local currency deposit ratings
affirmed at P-1
Short-term counterparty risk assessment affirmed at P-1(cr)
Outlook is stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Sophia Lee, CFA
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
Client Service: 852 3551 3077
Minyan Liu, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
