Hong Kong, November 18, 2014 -- Moody's Investors Service has affirmed all the ratings of Hana Bank
and Korea Exchange Bank (KEB) following the approval of the two banks'
merger by Hana Financial Group's board of directors.
At the same time, Moody's has raised the baseline credit assessment
(BCA) of KEB to baa1 -- equivalent to a C- Bank Financial
Strength Rating -- from baa2/C-.
The outlooks on the ratings are stable.
A full list of the affirmed ratings can be found at the end of this press
release.
RATINGS RATIONALE
"The affirmation of Hana Bank's ratings reflects Moody's
consideration that the bank's financial fundamentals will remain
at current levels upon its merger with KEB," says Hyun Hee
Park, a Moody's Assistant Vice President and Analyst.
Hana Bank and KEB are the two main operating subsidiaries and are 100%
owned by Hana Financial Group (Hana FG, unrated).
"Moody's decision to raise the BCA of KEB to baa1 from baa2
reflects the increasing likelihood of a merger between Hana Bank and KEB
and the improvement in the bank's credit profile under the supervision
of Hana FG, which became its parent from February 2012,"
adds Park.
"Moody's notes that KEB's creditworthiness --
under the supervision of its parent, Hana FG -- has
been improving gradually, as indicated, and is approaching
a level equivalent to that of Hana Bank. Therefore, the merger
of KEB with Hana Bank will not dilute the financial health of the new
combined bank," says Park.
However, KEB's foreign currency long-term senior unsecured
debt rating of A1 remains unchanged.
This is because Moody's upgraded its senior debt rating by one notch
to A1 from A2 -- incorporating one notch of parental support
to KEB's baa2 BCA -- on 5 April 2013 when Hana FG
raised its stake in KEB to 100%.
As a result, the adjusted BCA of KEB stood at baa1 which was already
in line with the BCA of Hana Bank.
Hana FG's board of directors agreed on 29 October 2014 to merge Hana Bank
and KEB by early next year. This time frame would be 2 years ahead
of the 2017 date originally agreed between Hana FG and KEB's labor
union on full integration.
In view of this new development, Moody's believes that Hana
FG will need to renegotiate with the union, which is fundamentally
opposed to the merger. The merger is also still subject to regulatory
approval.
However, in Moody's view, the agreement of the board
shows that Hana FG is strongly committed to further integrating KEB into
the wider group.
Assuming that the merger proceeds as now planned, Moody's
notes that -- in view of the lead-up time which has
already passed -- the group has had the opportunity to deal
with many challenges. For example, KEB's practices and standards
in risk management are being brought up to Hana Bank's levels.
If a smooth integration is executed, this development could mean
that the enlarged entity will be able to reap cost savings in IT integration.
In terms of synergistic benefits, they could come from improved
business diversification; for example, KEB could bring a strong
foreign exchange and international trade finance business.
However, these synergies are unlikely be achieved in the foreseeable
future, unless a strong level of integration and linkage between
the two entities emerges.
HANA BANK
WHAT COULD CHANGE THE RATING -- UP
An upgrade of Hana Bank's A1 credit ratings is possible if: (1)
its Common Equity Tier 1 ratio exceeds 14% (10.84%
at end-June 2014 under the Basel III standard); and (2) the
ratio of net income to average assets exceeds 1.5% for three
consecutive fiscal years (about 1.15% at end-June
2014) as long as it maintains its current level of asset quality (NPL
ratio of 1.33% at end-June 2014).
WHAT COULD CHANGE THE RATING - DOWN
Moody's would downgrade Hana Bank's long-term deposit or
debt ratings if its baseline credit assessment is lowered.
The bank's baseline credit assessment could be lowered if: (1) its
asset quality deteriorates consistently; or (2) its Common Equity
Tier 1 ratio drops below 10% under the Basel III standard (10.84%
at end-September 2014 under Basel III).
KOREA EXCHANGE BANK
WHAT COULD CHANGE THE RATING -- UP
An upgrade of KEB's A1 credit ratings is possible if: (1) its Common
Equity Tier 1 ratio exceeds 14% (11.07% at end-June
2014 under the Basel III standard); and (2) the ratio of net income
to average assets exceeds 1.5% for three consecutive fiscal
years (about 0.87% at end-June 2014) as long as it
maintains the current level of asset quality (NPL ratio of 1.27%
at end-June 2014).
WHAT COULD CHANGE THE RATING - DOWN
Moody's would downgrade KEB's long-term deposit or debt ratings
if its baseline credit assessment is lowered.
The bank's baseline credit assessment could be lowered if: (1) its
Common equity Tier 1 capital ratio drops below 10% (11.07%
at end-June 2014 under the Basel III standard); or (2) its
asset quality deteriorates consistently.
Affirmed ratings
Hana Bank
The local and foreign currency long-term deposit rating of A1;
foreign currency long-term senior unsecured debt rating of A1;
foreign currency long-term Basel III-compliant subordinated
debt of Baa2(hyb); foreign currency long-term senior unsecured/
Basel III-compliant subordinated medium-term notes (MTN)
programmes of (P)A1/(P)Baa2; backed senior unsecured MTN programmes
of (P)A1 and BFSR of C-, which is equivalent to BCA of baa1;
and the local and foreign currency short-term deposit rating /commercial
paper/ short-term MTN programme rating of P-1/P-1/(P)P-1.
KEB
The local and foreign currency long-term deposit rating of A1;
foreign currency long-term senior unsecured debt rating of A1;
plain vanilla foreign currency long-term subordinated debt rating
of Baa1; foreign currency long-term Basel III-compliant
subordinated debt of Baa2(hyb); foreign currency long-term
senior unsecured/ Basel III-compliant subordinated medium-term
notes (MTN) programmes of (P)A1/(P)Baa2; BFSR of C-;
and the local and foreign currency short-term deposit ratings /commercial
paper/ short-term MTN programme rating of P-1/P-1/(P)P-1.
The principal methodology used in these ratings was Global Banks published
in July 2014. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Hana Bank, headquartered in Seoul, had assets of KRW172.3
trillion (USD170.3 billion) at end-June-2014.
It is the sixth-largest bank in Korea, with about a 8.7%
market share by assets.
Korea Exchange Bank, headquartered in Seoul, had assets of
KRW 116.3 trillion (USD115.0 billion) at end-June
2014. It is the eighth-largest bank in Korea, with
about a 5.9% market share by assets.
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
Asst Vice President - 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 both Hana Bank and KEB; raises KEB's BCA
