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Rating Action:

Moody's affirms Woori Bank's A1 deposit rating; outlook stable

 The document has been translated in other languages

19 Jul 2021

Hong Kong, July 19, 2021 -- Moody's Investors Service has affirmed the long-term foreign currency A1 bank deposits and A1 senior unsecured ratings of Woori Bank.

Moody's has also affirmed the bank's Baseline Credit Assessment (BCA) and adjusted BCA of baa1.

The rating outlook remains stable, reflecting Moody's view that the bank's asset quality, capital and profitability will remain stable over the next 12-18 months supported by Korea's resilient economic growth and the bank's plan to slow loan growth.

In addition, Moody's has affirmed the ratings of Woori Bank's overseas branches.

A full list of the affected ratings and assessments is provided at the end of this press release, identifying each affected issuer.

RATINGS RATIONALE

The affirmation of Woori Bank's baa1 BCA reflects the bank's (1) strong and improved asset quality; (2) stable funding and liquidity supported by its strong retail banking franchise; (3) solid capitalization, although this is weaker than those of its large domestic bank peers; and (4) moderate profitability, which Moody's expects will remain stable.

The stable outlook is supported by (1) the stable operating environment in Korea, with Moody's real GDP growth forecasts of 3.5% for 2021 and 3.0% for 2022; and (2) the bank's strengthened provisions against expected credit losses, with its loan loss reserves to problem loans ratio increasing to 145.4% as of the end of March 2021 from 112.2% as of the end of 2019.

Moody's expects stable asset quality for Woori Bank in the next 12-18 months, beyond regulatory forbearance that will end in September 2021, supported by Korea's robust economic recovery and an orderly wind down of fiscal and financial support that will help minimize risks of a sudden deterioration in asset quality. The bank's efforts to de-risk its existing loans in cyclical sectors and loan growth driven by loans to prime borrowers will also reduce the risk of a significant increase in its problem loans ratio.

Moody's also expects benign asset quality for retail loans because of the continued strengthening of prudential measures for household loans and mortgages, driven by government policies to curb the growth of household debt. For example, the loan-to-value ratio for the banking system's mortgage loans is low below 50%.

Against these strengths, Woori Bank's weaker capitalization and profitability compared to its domestic peers constrain its credit profile. The bank's tangible common equity (TCE) to risk weighted assets (RWA) ratio was 14.3% as of the end of March 2021, lower than its large nationwide bank peers' average of 15.1%. In addition, as the key operating entity of Woori Financial Group, Woori Bank may need to provide capital for the group's future acquisitions, which may result in slower internal capital generation compared to its peers in the next 2-3 years.

Woori Bank's A1 long-term deposit and senior unsecured ratings incorporate a three-notch uplift for government support to reflect the very high level of support from the Korean government (Aa2 stable) in times of need. Moody's view of the government support takes into consideration the bank's systemic importance as one of the largest banks in terms of asset size and the bank's designation as a domestic systemically important bank in Korea. It also reflects Korea's strong capacity to provide support, and the government's track record of bailing out distressed banks.

Woori Bank's Counterparty Risk Ratings (CRR) are Aa3/P-1, and Counterparty Risk Assessments (CRA) are Aa3(cr)/P-1(cr). Korea does not have an operational bank resolution regime. Moody's therefore applies a basic Loss Given Failure approach in rating Korean banks. The starting point for the CRR and CRA are one notch above the bank's Adjusted BCA, to which Moody's then adds a three-notch uplift for government support.

Moody's used Woori Bank's adjusted BCA of baa1 as the anchor for the AT1 notes' rating and placed the rating three notches below this anchor point, at Ba1 (hyb). This treatment captures instrument-specific risks, including the risks of mandatory and/or discretionary coupon suspension, and the contractual loss-absorption features, in combination with the AT1 securities' deeply subordinated claim in liquidation.

Moody's used Woori Bank's adjusted BCA of baa1 as the anchor for its Tier 2 subordinated notes rating, and placed the rating one notch below this anchor point, at Baa2 (hyb). This treatment captures the contractual loss-absorption features and the notes' subordination.

The ratings on the bank's branches are aligned with that of the bank, taking into consideration that the bank and the branches are legally the same entities.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade Woori Bank's ratings if the bank's economic capitalization improves without a significant increase in double leverage at the Woori Financial Group; a demonstrated reduction in the bank's asset risk, with lower volatility in its problem loans/gross loans; and a significant improvement in its liquidity, with liquid banking assets/tangible banking assets rising above 20% on a sustained basis.

Moody's could downgrade Woori Bank's ratings if the bank's asset quality deteriorates significantly, with its problem loan ratio and provisioning charges rising significantly on a sustained basis; capitalization weakens significantly, with its TCE/RWA decreasing below 11% on a sustained basis; or if there is a significant deterioration in its funding and liquidity.

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Woori Bank, headquartered in Seoul, South Korea, had total assets of KRW386.3 trillion (USD341.3 billion) at the end of March 2021.

LIST OF AFFECTED RATINGS AND ASSESSMENTS

..Issuer: Woori Bank

.... Adjusted Baseline Credit Assessment, Affirmed baa1

.... Baseline Credit Assessment, Affirmed baa1

.... Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Aa3

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Rating (Foreign Currency), Affirmed P-1

.... Long-term Deposit Rating (Foreign Currency), Affirmed A1; Outlook, Remains Stable

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A1

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-1

.... Long-term Subordinate Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2

.... Long-term Pref. Stock Non-cumulative (Foreign Currency), Affirmed Ba1 (hyb)

.... Long-term Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed Baa2 (hyb)

.... Short-term Deposit Note/ CD Program (Foreign Currency), Affirmed (P)P-1

.... Commercial Paper (Foreign Currency), Affirmed P-1

.... Long-term Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1; Outlook, Remains Stable

.... Outlook, Remains Stable

..Issuer: Woori Bank, Hong Kong Branch

.... Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Aa3

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Note/ CD Program (Foreign Currency), Affirmed (P)P-1

.... Outlook, Remains Stable

..Issuer: Woori Bank, London Branch

.... Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Aa3

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Note/ CD Program (Foreign Currency), Affirmed (P)P-1

.... Commercial Paper (Foreign Currency), Affirmed P-1

.... Outlook, Remains Stable

..Issuer: Woori Bank, Los Angeles Branch

.... Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Aa3

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Note/ CD Program (Local Currency), Affirmed (P)P-1

.... Outlook, Remains Stable

..Issuer: Woori Bank, Sydney Branch

.... Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Aa3

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Long-term Deposit Program/ CD Program (Local Currency), Affirmed (P)A1

.... Short-term Deposit Note/ CD Program (Local Currency), Affirmed (P)P-1

....Long-term Deposit Note/ CD Program (Local Currency), Affirmed A1; Outlook, Remains Stable

.... Other Short Term (Local Currency), Affirmed P-1

.... Outlook, Remains Stable

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 entities are participating and the rated entities or their agent(s) generally provide 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Tae Jong Ok
Vice President - Senior Analyst
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

Sophia Lee, 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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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