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Rating Action:

Moody's affirms Woori Bank's A1 long-term foreign currency deposit and senior unsecured ratings; outlook stable

 The document has been translated in other languages

10 Jul 2019

Hong Kong, July 10, 2019 -- Moody's Investors Service has affirmed Woori Bank's A1 long-term foreign currency deposit and senior unsecured ratings.

Moody's has also upgraded Woori Bank's Baseline Credit Assessment (BCA) and adjusted BCA to baa1, and the ratings of Basel 3 capital securities because their ratings are anchored to the adjusted BCA.

As a result, Moody's has upgraded Woori Bank's Basel 3 Additional Tier 1 (AT1) notes ratings (Pref. Stock Non-cumulative) to Ba1(hyb) from Ba2 (hyb), Basel 3 Tier 2 Subordinated MTN program rating to (P)Baa2 from (P)Baa3, and Basel 3 Tier 2 Subordinated rating to Baa2 (hyb) from Baa3 (hyb).

The ratings outlook is stable.

A list of all affected ratings and assessments for Woori Bank and its branches is provided at the end of this press release.

RATINGS RATIONALE

On 25 June 2019, the Public Fund Oversight Committee under the Financial Services Commission approved a roadmap for the disposal of an 18.3% government stake in Woori Financial Group.

In January 2019, Woori Financial Group Inc. was established, and Woori Bank became its wholly owned subsidiary. In this process, the government stake in Woori Bank held via the Korea Deposit Insurance Corporation was transferred to Woori Financial Group.

According to the announced plan, the government stake will be sold via public tenders in two to three batches from 2020 to 2022, with each sale being up to a 10% stake size. Eligible bidders include existing shareholders of Woori Financial Group or other investors that can invest a minimum 4% stake in Woori Financial Group.

LONG-TERM SENIOR UNSECURED DEBT AND DEPOSIT RATINGS

The affirmation of Woori Bank's A1 foreign currency long-term deposit and senior unsecured ratings takes into account the bank's reduced government support from the likely disposal of the government's 18.3% stake in Woori Financial Group, as well as the upgrade of Woori Bank's BCA to baa1 from baa2.

Moody's narrowed the government support notching for the bank to three from four, reflecting the clear roadmap by the authorities to dispose of the government's stake in Woori Financial Group. This equalizes the government support notching incorporated in Woori Bank's ratings with those of other Moody's-rated nationwide commercial banks designated as domestic systemically important in Korea.

Moody's has also upgraded Woori Bank's BCA to baa1, taking into account its structural and sustainable improvements that translate into (1) improved capitalization, with its common equity Tier 1 ratio likely to rise to 11.7% after Woori Card becomes a wholly owned subsidiary of Woori Financial Group in September 2019; as of March 2019, its common equity Tier 1 ratio was at 11.1%; (2) its improving asset quality, with its problem loans ratio at a low 0.6% at 31 March 2019, which was unchanged from the 0.6% registered at the end of 2018; and (3) stable funding and liquidity, with the liquidity coverage ratio at 108.1% in Q1 2019.

Woori Bank does not receive any affiliate support. Consequently, its adjusted BCA is in line with its BCA.

BASEL 3 CAPITAL SECURITIES

On the Ba1 (hyb) rating for the Basel 3 AT1 notes, Moody's used Woori Bank's adjusted BCA of baa1 as the anchor for the rating and placed the rating for the AT1 notes 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.

As for the Baa2 (hyb) rating for the Basel 3 Tier 2 subordinated notes, Moody's used Woori Bank's adjusted BCA of baa1 as the anchor for the 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.

These Basel 3 capital securities can be fully written down at the point of non-viability, which in Korea is the designation as an insolvent financial institution.

BASEL 2 CAPITAL SECURITIES

For the Basel 2 Tier 2 subordinated debt, Moody's affirmed the rating at Baa1, reducing government support incorporated to one notch from previous two; consistent with the reduced government support for the bank's long-term senior unsecured and deposit ratings. The one notch uplift considers Korea's demonstrated willingness and fiscal capacity to provide support, in combination with its existing bank resolution regime that provides recourse for creditors to seek compensation.

Moody's points out that Basel 2 capital securities are no longer issued by banks in Korea, and they will no longer be counted towards bank capitalization after 2019.

What Could Change the Rating Up:

Moody's could upgrade Woori Bank's ratings if its financial fundamentals improve significantly, leading to upward pressure on its BCA from: (1) a significant improvement in its capitalization, with tangible common equity/risk-weighted assets (TCE/RWA) rising above 14% on a sustained basis, without significant leverage taken on by the Woori Financial Group; (2) a demonstrated reduction in asset risk, with a lower volatility in its problem loans to gross loans ratio; and (3) a significant improvement in its liquidity, with liquid banking assets to tangible banking assets rising above 20% on a sustained basis.

What Could Change the Rating Down

Moody's could downgrade Woori Bank's ratings if its BCA comes under downward pressure, which could result from: (1) a significant increase in risk taking, with its problem loan ratio and provisioning charges rising significantly on a sustained basis; (2) a significant weakening of its capitalization, with its TCE/RWA ratio decreasing below 11% on a sustained basis; or (3) a significant deterioration in its funding and liquidity profiles.

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.

Woori Bank is headquartered in South Korea. It reported assets of KRW345 trillion (USD303 billion) at 31 March 2019.

LIST OF AFFECTED RATINGS

Woori Bank

- Foreign currency long-term deposit rating affirmed of A1 affirmed, outlook stable

- Foreign currency short-term deposit rating of P-1 affirmed

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Foreign currency commercial paper rating of P-1 affirmed

- Foreign currency other short-term rating of (P)P-1 affirmed

- Foreign currency senior unsecured rating of A1 affirmed, outlook stable

- Foreign currency senior unsecured MTN rating of (P)A1 affirmed

- Foreign currency Basel III compliant subordinated debt rating upgraded to Baa2 (hyb) from Baa3 (hyb)

- Foreign currency Basel II subordinated debt rating of Baa1 affirmed

- Foreign currency Basel III compliant subordinated MTN rating upgraded to (P)Baa2 from (P)Baa3

- Foreign currency preference stock non-cumulative rating upgraded to Ba1(hyb) from Ba2 (hyb)

- Long-term counterparty risk assessment of Aa3(cr) affirmed

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Local and foreign currency long-term counterparty risk rating affirmed at Aa3

- Local and foreign currency short-term counterparty risk rating affirmed at P-1

- Baseline credit assessment and adjusted baseline credit assessment upgraded to baa1 from baa2

- Outlook is stable

Woori Bank, London Branch

- Long-term counterparty risk assessment of Aa3(cr) affirmed

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Foreign currency commercial paper rating of P-1 affirmed

- Local and foreign currency long-term counterparty risk rating affirmed at Aa3

- Local and foreign currency short-term counterparty risk rating affirmed at P-1

- Outlook is stable

Woori Bank, Hong Kong Branch

- Long-term counterparty risk assessment of Aa3(cr) affirmed

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Local and foreign currency long-term counterparty risk rating affirmed at Aa3

- Local and foreign currency short-term counterparty risk rating affirmed at P-1

- Outlook is stable

Woori Bank, Los Angeles Branch

- Long-term counterparty risk assessment of Aa3(cr) affirmed

- Local currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Local and foreign currency long-term counterparty risk rating affirmed at Aa3

- Local and foreign currency short-term counterparty risk rating affirmed at P-1

- 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 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.

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

No Related Data.
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