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Rating Action:

Moody's affirms Woori Bank's A2 ratings; changes outlook to stable

21 Nov 2016

Hong Kong, November 21, 2016 -- Moody's Investors Service has affirmed Woori Bank's A2 foreign currency bank deposit and senior unsecured ratings and changed the outlook to stable from negative.

At the same time, Moody's has affirmed the bank's Prime-1 short term deposit ratings, baa3 baseline credit assessment (BCA), Ba3(hyb) Additional Tier 1 rating, Ba1(hyb) Basel 3 compliant subordinated debt rating and A1(cr) Counterparty Credit Assessment.

The rating action follows the announcement on 13 November, of the Korea Deposit Insurance Corporation (KDIC) and Financial Services Commission that KDIC will sell a 29.7% stake in the bank to seven selected investors, paving the way for Woori Bank to become a more efficient and commercially focused bank. The affirmation of Woori Bank's baa3 BCA reflects its stable but weaker-than-peers capitalization, modest but improving asset quality, and steady funding and liquidity profiles.

The affirmation of the A2 bank deposit rating and change in outlook to stable from negative reflect Moody's expectation that KDIC will maintain its remaining 21% stake until the bank's performance improves, thereby maximizing the recovery of the public funds injected into the bank between 1998 and 2002. Once the government materially reduces the remaining stake, Moody's expects to reduce Woori Bank's government support uplift to three, from the current four notches, in-line with government support uplift of other commercial banks designated as Domestic Systemically Important Bank.

A full list of the affected ratings is provided at the end of this press release.

RATINGS RATIONALE

AFFIRMATION OF THE RATINGS

The key drivers for the affirmation of Woori Bank's ratings are its stable, but weaker-than-peers capitalization and modest asset quality. As of June 2016, the bank's Tangible Common Equity ratio was stable at 11.0%, while its problem loans ratio fell to 1.4% from 2.0% at end-2014.

The affirmation also captures the bank's improving profitability, although from a low base. Its net income to tangible assets ratio rose to 0.4% for the first half of 2016, compared to 0.3% for the full year 2015.

The deposit and senior unsecured ratings continue to incorporate four notches of government support, reflecting KDIC's remaining 21% stake as well as the bank's importance to Korea's financial system, evidenced by its designation as a domestic systemically important bank (D-SIB) and its large loan market share of 14%.

THE CHANGE IN THE OUTLOOK TO STABLE FROM NEGATIVE

The change in outlook to stable from negative reflects Moody's view that some of the uncertainties posed by the bank's privatization plan, first announced in July 2013, have been removed with the proposed sale, as well as the positive impact in the long term on the bank from its enhanced management independence.

KDIC sale of its 29.7% stake is expected to close by mid-December 2016. The seven investors and stakes to be acquired are Eugene Asset Management (unrated, 4.0%), IMM Private Equity (unrated, 6.0%), Hanwha Life Insurance (unrated, 4.0%), Kiwoom Securities (unrated, 4.0%), Korea Investment & Securities (unrated, 4.0%), Mirae Asset Global Investments (unrated, 3.7%) and Tongyang Life Insurance (unrated, 4.0%).

Of the seven investors, five plan to nominate board members, and the newly formed 14 member board of directors will appoint a new CEO in March 2017. At the same time, the memorandum of understanding signed with KDIC in exchange for the public fund injection will be terminated, reducing the potential for government influence on the bank's management.

The proposed sale, once completed, will bring the total of public funds recovered to KRW10.6 trillion, representing around 83% of the KRW12.8 trillion injected from 1998 to 2002 into what later became Woori Financial Group (unrated).

KDIC has not yet set a date for the sale of its remaining 21% stake, but has indicated that the timing will be determined to maximize the recovery of the public funds injected in the bank.

Consequently, Moody's expects the sale will occur after the bank's fundamentals further improve, a factor that also underpins the revision in the ratings outlook to stable from negative.

Factors that Could Lead to an Upgrade

Woori Bank's ratings may be upgraded if its BCA rises due to (1) its operating environment, as measured by the Macro Profile, improves; (2) improving capitalization, with its tangible common equity ratio rising above 13%; or (3) improving asset quality, with its problem loans ratio falling below 1.0%.

However, its A2 ratings are unlikely to rise further, due to the very high level of government support incorporated into the ratings.

Factors that Could Lead to a Downgrade

Woori Bank's long-term deposit or debt ratings may be downgraded if: (1) the bank's remaining government stake is sold without an improvement in its standalone credit profile, resulting in a narrowing of the current government support uplift of four notches; or (2) its BCA is lowered.

The bank's BCA could experience downward pressure if (1) Korean banks' operating environment deteriorates, resulting in a lowering of Korea's Macro Profile; (2) its capitalization weakens, with its tangible common equity ratio declining below 9%; (2) its asset risk deteriorates significantly; or (3) its funding and liquidity profiles deteriorate significantly.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Woori Bank is headquartered in Seoul, South Korea. It had total assets as of September 2016 of KRW313 trillion, or USD285 billion.

Outlook Actions:

..Issuer: Woori Bank

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Woori Bank

.... Adjusted Baseline Credit Assessment, Affirmed baa3

.... Baseline Credit Assessment, Affirmed baa3

.... Counterparty Risk Assessment, Affirmed A1(cr)/P-1(cr)

.... Deposit Rating (Foreign Currency), Affirmed A2/P-1

.... Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A2

.... Subordinate Medium-Term Note Program (Foreign Currency), Affirmed (P)Ba1

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

.... Pref. Stock Non-cumulative Preferred Stock (Foreign Currency), Affirmed Ba3(hyb)

.... Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed Baa2/Ba1(hyb)

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

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A2

..Issuer: Woori Bank, London Branch

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

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

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.

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
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
SUBSCRIBERS: (852) 3551-3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

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
SUBSCRIBERS: (852) 3551-3077

No Related Data.
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