Hong Kong, December 08, 2017 -- Moody's Investors Service has today affirmed the ratings and assessments
of KEB Hana Bank, Kookmin Bank and Shinhan Bank.
Moody's has also revised to stable from negative the ratings outlook
of KEB Hana Bank and Shinhan Bank, and maintained Kookmin Bank's
ratings outlook at stable.
Moody's has placed under review for upgrade all of Woori Bank's
long-term ratings, long-term counterparty risk assessment,
baseline credit assessment (BCA) and adjusted BCA of baa3. At the
same time Moody's affirmed its short-term ratings and short-term
counterparty assessment.
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
The affirmation of the ratings and assessments for KEB Hana Bank,
Kookmin Bank and Shinhan Bank, as well as the placing of Woori Bank
under review for upgrade, reflect the improved operating environment
of the banks. Korea as an open export-driven economy is
one of the key beneficiaries of the synchronized global economic expansion.
Moody's expects Korea's real GDP to grow at 3% in 2017
and 2.8% in 2018, which is higher than the other G20
advanced countries.
In addition, Moody's expects structural changes in the loan
portfolio and cost base that the banks have achieved will result in improved
asset quality and profitability on a more sustained basis. For
example, the four banks' exposures to vulnerable industries
undergoing restructuring — such as shipbuilding, shipping
and construction — have declined to 5.1% of their
total loans as of June 2017 from 9.5% as of December 2013.
On the cost front, the banks have also reduced the number of domestic
branches (by 15% as of June 2017) compared to the peak at the end
of 2012. The number of domestic employees declined by 12%
as of June 2017 from the peak at the end of 2013.
Tail risk from the banks' existing exposures to cyclical sectors
has also diminished significantly, a result of the reduced leverage
of the shipbuilding and shipping sectors — because of their ongoing
restructuring — as well as an increase in shipbuilding orders.
This will result in higher utilization rates at Korean shipyards in 2018.
In addition to improved asset quality, these banks are also sufficiently
capitalized. Moody's also expect to see benign asset quality
for retail loans, partially because of the continued strengthening
of prudential measures for household loans and mortgages, driven
by government policies to curb the growth of household debt. A
low loans-to-value ratio of system-wide mortgage
loans, mostly at about 50% means that the equity buffer built
into system-wide mortgage loans is good.
The outlook for Shinhan Bank and KEB Hana Bank was changed to stable from
negative because of the absence of a deterioration in asset quality or
profitability that Moody's was concerned about, when the banks'
outlook was changed to negative. Moody's expects that these
banks' liquidity, funding and capitalization will remain stable
at current levels over the outlook period.
Among Korean banks, Shinhan Bank has the highest BCA — of
a3 — which reflects its long track record of superior asset quality
performance and stable profitability.
For Kookmin Bank, Moody's maintained its stable outlook on
the bank's deposit and senior debt ratings. Kookmin Bank
is one of the best capitalized banks in Korea, and as a result has
a strong capital buffer against its asset risk, which had shown
high volatility in the past. Kookmin Bank's credit metrics
have improved to similar levels with that of Shinhan Bank, but its
BCA of baa1 and long-term deposit and senior unsecured debt ratings
of A1 are one notch lower than that of Shinhan Bank, because the
performance of Kookmin Bank's credit metrics has been less consistent
through the cycle.
For Woori Bank, Moody's placed its long-term ratings,
long-term counterparty risk assessment, BCA and adjusted
BCA under review for upgrade in order to determine whether recent improvements
to Woori Bank's credit fundamentals are structural and sufficiently
sustainable to merit an increase to its BCA, which is currently
at baa3. Moody's will also consider any new information the
Korean government or KDIC may announce regarding their plan or direction
for the further sale of the remaining government stake in Woori Bank.
Woori Bank has made structural improvements to its asset risk, by
reducing exposures to large corporates with low credit ratings and to
cyclical sectors such as shipbuilding. The improvement in its capitalization
was especially pronounced, with Woori Bank's tangible common
equity to risk-weighted assets rising by 1.4 percentage
points to 12.2% as of September 2017 from the level registered
at the end of 2015.
It also completed an early retirement program in the third quarter of
2017, which reduced its work force by 6%. The bank
has also continued to shrink its branch network, which will be helpful
to its efficiency. Its financial metrics have improved as a result,
creating clear upward pressure on its BCA of baa3.
Upward pressure on Woori Bank's senior ratings is less clear because
an upgrade of its long-term ratings will depend on Moody's
view on whether or not current government support is sustainable,
in light of the government's ultimate plan to dispose of its stakes
in Woori Bank completely. Woori Bank's ratings currently
benefit from four notches of government support, which is higher
than the three notches applied to its peers such as KEB Hana, Kookmin
and Shinhan Bank. At 30 September 2017, the Korean government,
via the Korea Deposit Insurance Corporation (KDIC), held an 18.5%
stake in Woori Bank.
WHAT COULD CHANGE THE RATINGS UP/DOWN
For KEB Hana Bank, Kookmin Bank and Shinhan Bank, Moody's
could downgrade these banks' ratings if their financial fundamentals
deteriorate significantly and on a sustained basis.
All other rating factors being constant, their BCAs would come under
downward pressure if any of these conditions are met: (1) a significant
increase in the problem loan ratio and provision charges without increases
in core capital; (2) a significant weakening of capitalization with
TCE/RWA ratios decreasing by more than 200 basis points; and/or (3)
a significant deterioration in their funding and liquidity positions.
For the banks with stable outlooks, their ratings could be upgraded,
if their financial fundamentals improve significantly, leading to
upward pressure on their BCAs from: (1) significant improvements
in capitalization, while maintaining stable asset quality;
(2) a significant decline in problem loan ratios and provision charges,
while maintaining stable capitalization; and (3) significant improvements
in their funding and liquidity positions. For Kookmin Bank,
Moody's will also consider whether the bank will develop a longer
term track record of improved asset risk.
For Woori Bank, evidence that the current financial metrics can
be sustained or improved further, particularly capitalization and
asset risk, could lead to an increase in its BCA and upgrades to
its subordinated debt and preference stock non-cumulative ratings.
Upgrades of its long-term deposit and senior unsecured debt ratings
will depend on the scope of BCA improvement, as well as Moody's
review of government support for Woori Bank, in consideration of
the government's plan for future stake sales.
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
KEB Hana Bank, headquartered in Seoul, South Korea,
had total assets of KRW325 trillion (USD284 billion) at the end of September
2017.
Kookmin Bank, headquartered in Seoul, South Korea, had
total assets of KRW327 trillion (USD285 billion) at the end of September
2017.
Shinhan Bank, headquartered in Seoul, South Korea, had
total assets of KRW328 trillion (USD286 billion) at the end of September
2017.
Woori Bank, headquartered in Seoul, South Korea, had
total assets of KRW318 trillion (USD278 billion) at the end of September
2017.
LIST OF AFFECTED RATINGS
KEB Hana Bank
- Foreign currency and local currency long-term deposit
ratings of A1 affirmed with a stable outlook;
- Foreign currency and local currency short-term deposit
ratings of P-1 affirmed;
- Foreign currency long-term and short-term deposit
note/CD program rating of (P)A1/(P)P-1 affirmed;
- Foreign currency senior unsecured debt rating of A1 affirmed
with a stable outlook;
- Foreign currency commercial paper rating of P-1 affirmed;
- Foreign currency other short-term rating of (P)P-1
affirmed;
- Foreign currency senior unsecured/ Basel III-compliant
subordinated debt medium-term notes (MTN) programmes of (P)A1/(P)Baa2
affirmed;
- Plain vanilla foreign currency subordinated debt rating of Baa1
affirmed;
- Foreign currency Basel III-compliant subordinated debt
rating of Baa2(hyb) affirmed;
- Long-term / Short-term counterparty risk assessment
of Aa3(cr)/P-1(cr) affirmed
- Baseline credit assessment and adjusted baseline credit assessment
of baa1 affirmed
- Outlook is changed to stable from negative
KEB Hana Bank, London Branch
Foreign currency long-term and short-term deposit note/CD
program rating of (P)A1 and (P)P-1 affirmed;
Long-term and short-term counterparty risk assessment of
Aa3(cr)/P-1(cr) affirmed
Outlook is changed to stable from negative
KEB Hana Bank, Singapore Branch
Foreign currency long-term and short-term deposit note/CD
program rating of (P)A1 and (P)P-1 affirmed;
Long-term and short-term counterparty risk assessment of
Aa3(cr)/P-1(cr) affirmed
Outlook is changed to stable from negative
KEB Hana Bank, Hong Kong Branch
Foreign currency long-term and short-term deposit note/CD
program rating of (P)A1 and (P)P-1 affirmed;
Long-term and short-term counterparty risk assessment of
Aa3(cr)/P-1(cr) affirmed
Outlook is changed to stable from negative
Kookmin Bank
- Foreign currency and local currency long-term deposit
ratings of A1 affirmed with a stable outlook
- Foreign currency and local currency short-term deposit
ratings of P-1 affirmed
- Foreign currency long-term and short-term deposit
note/CD program rating of (P)A1/(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 with
a stable outlook
- Foreign currency senior unsecured MTN program rating of (P)A1
affirmed
- Long-term and short-term counterparty risk assessment
of Aa3(cr) and P-1(cr) affirmed
- Baseline credit assessment and adjusted baseline credit assessment
of baa1 affirmed
- Outlook is maintained at stable
Shinhan Bank
- Foreign currency long-term deposit rating of Aa3 affirmed
with a stable outlook;
- Foreign currency short-term deposit rating of P-1
affirmed
- Foreign currency commercial paper of P-1 affirmed
- Long-term / Short-term counterparty risk assessment
of Aa3(cr)/P-1(cr) affirmed
- Baseline credit assessment and adjusted baseline credit assessment
of a3 affirmed
- Foreign currency Other short-term rating of (P)P-1
affirmed
- Foreign currency senior unsecured debt rating of Aa3 affirmed
with a stable outlook;
- Foreign currency senior unsecured shelf rating of (P)Aa3 affirmed
- Foreign currency senior unsecured MTN program rating of (P)Aa3
affirmed
- Foreign currency Basel III compliant subordinated debt rating
of Baa1(hyb) affirmed
- Foreign currency Basel III-compliant subordinated MTN
program rating of (P)Baa1 affirmed
- Foreign currency Basel II subordinated MTN program rating of
(P)A3 affirmed
- Outlook is changed to stable from negative
Shinhan Bank, New York Branch
- Local currency long-term and short-term deposit
note/CD program of (P)Aa3/P-1 affirmed
- Local currency commercial paper rating of P-1 affirmed
- Long-term/ Short-term Counterparty risk assessment
of Aa3(cr)/P-1(cr) affirmed
- Outlook is changed to stable from negative
Shinhan Bank, Hong Kong Branch
- Foreign currency long-term and short-term deposit
note/CD program rating of (P)Aa3/(P)P-1 affirmed
- Outlook is changed to stable from negative
Woori Bank
- Foreign currency long-term deposit rating of A2,
under review for upgrade
- Foreign currency short-term deposit rating of P-1
affirmed
- Foreign currency long-term deposit note/CD program rating
of (P)A2 under review for upgrade;
- 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 A2 under review for
upgrade
- Foreign currency senior unsecured MTN program rating of (P)A2
under review for upgrade
- Foreign currency Basel III compliant subordinated debt rating
of Ba1(hyb) under review for upgrade
- Foreign currency Basel II subordinated debt rating of Baa2 under
review for upgrade
- Foreign currency Basel III compliant subordinated MTN program
rating of (P)Ba1 under review for upgrade
- Foreign currency preference stock non-cumulative rating
of Ba3(hyb) under review for upgrade
- Long-term counterparty risk assessment of A1(cr) under
review for upgrade
- Short-term counterparty risk assessment of P-1(cr)
affirmed
- Baseline credit assessment and adjusted baseline credit assessment
of baa3 under review for upgrade
- Outlook is changed to rating under review from stable
Woori Bank, London Branch
- Foreign currency long-term deposit note/CD program rating
of (P)A2 under review for upgrade;
- Long-term counterparty risk assessment of A1(cr) under
review for upgrade
- 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
- Outlook is changed to rating under review from stable
Woori Bank, Hong Kong Branch
- Foreign currency long-term deposit note/CD program rating
of (P)A2 under review for upgrade;
- Long-term counterparty risk assessment of A1(cr) under
review for upgrade
- Foreign currency short-term deposit note/CD program rating
of (P)P-1 affirmed;
- Short-term counterparty risk assessment of P-1(cr)
affirmed
- Outlook is changed to rating under review from stable
Woori Bank, Los Angeles Branch
- Local currency long-term deposit note/CD program rating
of (P)A2 under review for upgrade;
- Long-term counterparty risk assessment of A1(cr) under
review for upgrade
- Local currency short-term deposit note/CD program rating
of (P)P-1 affirmed;
- Short-term counterparty risk assessment of P-1(cr)
affirmed
- Outlook is changed to rating under review from 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.
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
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 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
Client Service: 852 3551 3077
