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Announcement:

Moody's affirms Suhyup Bank's ratings

13 Dec 2010

Hong Kong, December 13, 2010 -- Moody's Investors Service has decided to affirm Suhyup Bank's ratings after assessing the effects of an apparent deterioration in asset quality.

The ratings are:

- Global local and foreign currency deposit ratings: A2/Prime-1

- Foreign currency senior unsecured debt rating: A2/Prime-1

- Foreign currency subordinate / junior subordinate ratings: A3

- Bank Financial Strength Rating (BFSR): D-

- Baseline Credit Assessment: Ba3

All these ratings continue to carry a negative outlook, except the Prime-1 short-term ratings.

This announcement follows a re-evaluation of the bank's financial metrics, prompted by a sharp spike in its problem loans during the second and third quarters of 2010.

Its NPL ratio -- defined as the proportion of loans classified as substandard and below -- deteriorated to 4.6% at September 2010 from 2.15% at March 2010, as a result of the restructuring, throughout the banking industry, of construction companies in 2Q10 and project financing loans in 3Q10.

"The rating affirmation reflects our view that Suhyup Bank's financial metrics are still within D- BFSR band," says Youngil Choi, a Moody's VP-Senior Analyst.

"However, the metrics have deteriorated to the lower end of the band. The ratio of precautionary and below loans has deteriorated to 86% of Tier 1 capital plus loan loss reserves. A downgrade of Suhyup's ratings would be likely if this ratio were to deteriorate to more than 100%," says Choi.

In Moody's view, the bank's earnings and asset quality are likely to remain sluggish for the next several quarters, given its relatively high credit exposure to riskier obligor segments and inadequate level of loan-loss provisioning.

Loans to property projects and the construction industry -- which have been suffering from over-supply problems -- are estimated at over 9% of total loans, one of the highest levels for Korean banks.

Moreover, Suhyup Bank's plan to improve asset quality through the sales or write-offs of NPLs is likely to affect its earnings negatively, given low loan loss provisioning levels. For example, its NPL coverage ratio -- defined as the ratio of loan loss reserve to NPLs -- deteriorated to about 70% at September 2010 from about 140% at end-2009.

Accordingly, its annualized return on assets -- which improved to 0.46% for the first nine months of 2010 from 0.31% a year ago -- are likely to be affected negatively.

The Tier 1 ratio also slightly deteriorated to 7.48% at September 2010 from 7.54% at end-2009 (5.95% in 2008), mainly because of asset growth and modest earnings.

The last rating action on Suhyup was taken on February 11, 2010 when its foreign currency junior subordinated debt rating was confirmed at A3 with a negative outlook

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

Suhyup Bank -- one of five specialized banks in Korea charged with public policy functions -- plays the policy role of providing financing and support for the development of Korea's fisheries and maritime industries. National Federation of Fisheries Cooperatives (NFFC), as a sole legal entity, runs three business units: Suhyup Bank (or the credit business unit), the economy business (EBU), and the guidance business (GBU). However, the bank separates its management, operations, and assets and liabilities from the other business units of the NFFC, as Article 138-5 and 164 of the Fisheries Cooperative Law -- charter for NFFC -- require it to do so. The bank, established in 1962, had assets of KRW19.7 trillion (about USD 17 billion) as of September 30, 2010.

Hong Kong
YoungIl Choi
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Stephen Long
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
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JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's affirms Suhyup Bank's ratings
No Related Data.
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