Hong Kong, March 17, 2016 -- Moody's Investors Service has assigned a Baa1 (hyb) rating to Shinhan
Bank's (Aa3 stable, a3) proposed USD-denominated benchmark
Basel III subordinated bond issue from its existing $6 billion
global medium-term note program.
The rating is positioned one notch below the bank's a3 adjusted baseline
credit assessment (adjusted BCA).
The rating of the proposed notes is subject to the receipt of final documentation,
the terms and conditions of which are expected to remain unchanged in
any material way from the draft documents Moody's has reviewed.
RATINGS RATIONALE
According to the terms, the principal on these notes would be fully
written down, in the event that the bank is designated as an "insolvent
financial institution" by the FSC or the Deposit Insurance Committee (DIC),
and pursuant to the Act on the Structural Improvement of the Financial
Industry.
The Baa1(hyb) rating is positioned one notch below the adjusted BCA.
Despite the consideration that the notes are technically contractual loss-absorption
non-viability subordinated debt, Moody's rating approach
is consistent with how we rate plain vanilla subordinated debt without
a contractual loss feature that is subject to a statutory bail-in
regime in terms of the timing for the imposition of losses.
In Moody's view, the issuance's linkage to legislation lowers
the uncertainty -- with respect to the timing of equity
conversions and principal write-downs -- that is
normally inherent in purely contractual non-viability securities.
Under the terms of the issuance, the "trigger events" leading to
loss absorption are linked to Korea's existing resolution framework,
as outlined under the Act on the Structural Improvement of the Financial
Industry.
Specifically, a trigger event is the designation of the bank as
an "Insolvent Financial Institution" pursuant to the Act.
The regulatory and political consensus in Korea is that pre-emptive
capital injections, funded initially by public funds, remain
the preferred way to resolve banks, and these capital injections
are not considered a trigger event for the subordinated bonds.
Therefore, in contrast to typical contractual non-viability
securities, Moody's has not deducted an additional notch from the
adjusted BCA to reflect uncertainty over the timing of loss absorption.
The operating environment for banks in Korea is growing more challenging,
particularly in light of Moody's expectation that the number of
corporates requiring restructuring will increase in 2016.
The outlook for marginal companies also remains challenging. Marginal
companies are mostly in sectors such as shipping, shipbuilding and
construction.
Total credit to marginal companies stood at KRW43.7 trillion as
of June 2015, of which 32.9% were from commercial
banks and 40.8% from policy banks.
In Moody's view, the increasingly challenging operating environment
increases negative pressure on standalone credit worthiness, including
that of Shinhan Bank.
However, as the highest positioned among rated Korean banks,
Shinhan Bank's a3 BCA -- and which is the reference point for
the ratings of its subordinated obligations -- remains particularly
sensitive to domestic operating conditions.
What Could Change the Rating - Up
Specific metrics that we would look for when considering a rating upgrade
are if: (1) the double leverage ratio of its parent, SFG,
falls to around 110%; and (2) its problem loans to total loans
ratio improves to 0.5%, without substantial write-offs
or sales of nonperforming loans.
We will raise the bank's BCA if Shinhan Bank improves its capitalization
and asset quality, while maintaining its current high profitability
levels, with annual net income to tangible assets of 0.6%.
What Could Change the Rating - Down
We would downgrade Shinhan Bank's long-term deposit and senior
unsecured debt ratings if its BCA were lowered.
The bank's BCA could be lowered if: (1) its tangible common equity
ratio falls below 11% (13.2% at end-September
2015); (2) its annual net income to tangible assets falls below 0.4%,
due to a sharp increase in credit losses (0.6% at end-September
2015); or (3) its problem loans to total loans exceeds 1.2%
(0.7% at end-September 2015).
The principal methodology used in this rating was Banks published in January
2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
Shinhan Bank, headquartered in Korea, had assets of KRW285
trillion ($242 billion) as of end-2015.
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.
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
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
Moody's assigns Baa1(hyb) to Shinhan Bank's subordinated notes issuance
