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Rating Action:

Moody's affirms ratings of Woori Finance Holdings and its bank subsidiaries

 The document has been translated in other languages

09 Jul 2013

Hong Kong, July 09, 2013 -- Moody's Investors Service has affirmed the ratings of Woori Finance Holdings (WFH) and those of its bank subsidiaries -- Woori Bank, Kyongnam Bank and Kwangju Bank -- after the Korean government announced a plan to privatize WFH.

RATINGS RATIONALE

Moody's maintains stable ratings outlooks for Kyongnam Bank and Kwangju Bank, as Moody's at this point is unable to determine the potential impact on the ratings due to lack of details regarding potential partners and the structure of the deal. Further, at this point, Moody's is unable to determine the potential impact on the ratings due to lack of details regarding potential partners and the structure of the deal. Moody's will reassess the ratings and outlooks as new details emerge.

However, Moody's has changed the outlook of WFH to positive from stable because the ratings of WFH will eventually equalized with those of Woori Bank, given its incorporation into Woori Bank. WFH will -- before it is sold -- be merged back into Woori Bank once spin-offs of the regional banks occur and a buyer for the brokerage unit of WFH is decided.

At the same time, Moody's has changed the outlook of Woori Bank to negative from stable, as it is unclear at which level the ratings of WFH and Woori Bank will equalize.

Moody's considers that Woori Bank's long-term deposit or debt ratings may be under pressure if the government privatizes WFH before the bank shows an improvement in its standalone credit profile, or if the merger with WFH puts pressure on its financial metrics, including capital.

A full list of the ratings can be found at the bottom of this press release.

Moody's will again examine the potential impact on the ratings of the bank subsidiaries as more concrete details of the privatization and potential partners emerge.

The A3 bank deposit ratings of Kyongnam Bank and Kwangju Bank -- the two regional subsidiaries -- currently include three notches of uplift, based on Moody's expectation of support for the banks from the government. The ratings of other regional banks receive only two notches of uplift.

Woori Bank's A1 bank deposit rating currently enjoys four notches of uplift, compared with three notches for other major banks, based on Moody's expectation of systemic support.

Unless a strong financial institution buys the three banks, the support uplift in their ratings could be at risk following WFH's privatization.

The plan's first stage involves spinning off the two regional banks as separate bank holding companies before divestment, and selling the brokerage unit.

Bidding for the regional banks and the brokerage unit will start on 15 July 2013.

Once the spin-offs occur and a buyer for the brokerage unit is decided, WFH will -- before it is sold -- be merged back into Woori Bank.

The plan to sell the non-core units first will help expedite the government's exit from WFH. The government's earlier attempts to sell its 57% stake in late 2010 and in May 2011 failed because it had tried to sell the whole group at one time.

Moody's believes that the government's exit from WFH could benefit governance and the operations of the bank subsidiaries, as the sold entities will likely become more commercially driven.

The government has a 56.97% stake in WFH through Korea Deposit Insurance Corporation (KDIC). WFH was established as Hanvit Bank on 4 January 1999, through a merger between Commercial Bank of Korea and Hanil Bank, with government funds in the aftermath of the Asian financial crisis. In a corporate reorganization on 2 April 2001, WFH was formed, with Woori Bank as its subsidiary.

Kyongnam Bank

What Could Change the Rating - Up / Down

Moody's would consider an upgrade or downgrade depending on the merger partner and the structure of the deal.

Moody's does not see much chance for the bank's long-term deposit rating to be upgraded in the foreseeable future because its A3 long-term deposit rating already incorporates a three-notch rating uplift, based on Moody's assumption of the likelihood of support from the government, if needed.

Kyongnam Bank's long-term deposit ratings could be downgraded if (1) it is acquired by an entity that has a weaker credit profile than its current main shareholder and/or if the structure of the acquisition involves an aggressive capital structure or (2) its standalone credit profile is lowered.

The bank's standalone credit profile could be downgraded if: (1) its NPL ratio rises to 5% or above (1.64% at end-September 2012); (2) its core Tier 1 capital ratio drops below 7.5% (8.5% at end-September 2012); and (3) its share of the local banking market declines.

Other considerations for a downgrade would include unfavorable changes in Moody's systemic support assumption. Moody's will continue to assess the appropriateness of the systemic support assumption incorporated in the bank's A3 long-term deposit rating relative to other domestic banks and some of Kyongnam Bank's global peers.

Kwangju Bank

What Could Change the Rating - Up / Down

Moody's would consider an upgrade or downgrade depending on the merger partner and the structure of the deal.

Moody's sees limited upside for the A3 deposit rating in the foreseeable future because the bank's A3 long-term deposit ratings already incorporate a three-notch rating uplift, based on Moody's assumption of a very high likelihood of support from the government, if needed.

Kwangju Bank's long-term deposit ratings may be downgraded if (1) it is acquired by an entity that has a weaker credit profile than its current main shareholder and/or if the structure of the acquisition involves an aggressive capital structure or (2) its standalone credit profile is lowered.

The bank's standalone credit profile could be downgraded if: (1) its NPL ratio rises to 5% (1.24% at end-September 2012), (2) its core Tier 1 capital ratio drops below 7.5% (8.5% at end-September 2012), or (3) its share of the local banking market declines.

Other considerations for a downgrade would include unfavorable changes in Moody's systemic support assumption. Moody's will continue to assess the appropriateness of the systemic support assumption incorporated in the bank's A3 long-term deposit rating relative to other domestic banks and some of Kwangju Bank's global peers.

Woori Bank

What Could Change the Rating - Up /Down

Moody's would consider an upgrade or downgrade depending on the merger partner and the structure of the deal.

The bank's long-term deposit and debt ratings are unlikely to be upgraded in the foreseeable future, because its A1 long-term senior debt and deposit ratings already incorporate a four-notch uplift from its standalone credit profile, due to Moody's assumption of a very high likelihood of government support, if needed.

Woori's long-term deposit or debt ratings may be downgraded if: (1) the government privatizes WFH before the bank shows an improvement in its standalone credit profile, such as an improvement in its asset quality and profitability; (2) the merger with WFH puts pressure on its financial metrics, including capital; or (3) its standalone credit profile is lowered.

The bank's standalone credit profile could be lowered if its core Tier 1 capital ratio drops below 8.5% (10.3% in March 2013), or its NPL ratio rises to 4% (1.98% in March 2013).

Woori Finance Holdings

What Could Change the Rating - Up / Down

WFH's credit rating will be equalized with that of Woori Bank if WFH is merged with Woori Bank. Moody's will assess the level at which the ratings will equalize.

Moody's would consider downgrading WFH's rating if its double leverage increases to 125%, and its liquidity position deteriorates.

The affected ratings and actions are listed below:

Woori Bank: A1 Bank Deposit rating, A1 Senior Unsecured Debt ratings, (P)A1 Senior Unsecured MTN rating, Ba2 Preferred Stock Non-cumulative rating, and baa2 bca with negative outlook, P-1 Short-term Deposit, (P)P-1 Short-term MTN rating, and P-1 Commercial Paper rating

Kyongnam Bank: A3 Bank Deposit rating, and baa3 bca with stable outlook, and P-2 short-term rating

Kwangju Bank: A3 Bank Deposit rating, and baa3 bca with stable outlook, and P-2 short-term rating

Woori Finance Holdings: A2 Issuer rating with positive outlook

Kyongnam Bank headquartered in Changwon City. As of March 2013, the bank's consolidated assets were KRW29.4 trillion (approximately USD26.4 billion).

Kwangju Bank headquartered in Kwangju City. As of March 2013, the bank's consolidated assets were KRW19.4 trillion (approximately USD17.4 billion).

Woori Bank headquartered in Seoul. As of March 2013, the bank's consolidated assets were KRW245 trillion (approximately USD220 billion).

Woori Finance Holdings headquartered in Seoul. As of March 2013, the company's consolidated assets were KRW327 trillion (approximately USD294 billion).

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Hyun Hee Park
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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's affirms ratings of Woori Finance Holdings and its bank subsidiaries
No Related Data.
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