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Rating Action:

Moody's assigns first-time A3 foreign currency issuer rating to Shinhan Capital; outlook stable

 The document has been translated in other languages

15 Sep 2021

Hong Kong, September 15, 2021 -- Moody's Investors Service has assigned an A3 foreign currency issuer rating to Shinhan Capital Co., Ltd.

This is the first time that Moody's has assigned a rating to Shinhan Capital.

The outlook on Shinhan Capital is stable.

RATINGS RATIONALE

Shinhan Capital's A3 rating reflects its standalone assessment of ba1 that incorporates its (1) strong profitability; (2) moderate asset quality supported by the company and the group's stringent risk management; (3) moderate capital that is supported by Shinhan Financial Group Co., Ltd. (A1 stable); and (4) weak funding and liquidity due to a high portion of short-term market funding, reflecting the characteristic of a finance company and its inaccessibility to deposit funding.

In addition, there is a four-notch uplift for likely affiliate support, reflecting our assessment of a very high level of support from Shinhan Bank (Aa3 stable, a3) via Shinhan Financial Group, if necessary.

As one of Korea's leading finance companies affiliated with Shinhan Financial Group, a domestically systemically important group, Shinhan Capital is aligned with the group's portfolio strategy. The company focuses on exposures that are at lower end of the credit curve, compared to the prime and mid-prime borrowers that its bank and credit card affiliates serve. This results in Shinhan Capital's strong profitability which in turn contributes to the group's profitability. Shinhan Capital is also diversifying its businesses by expanding its investment assets and has a competitive advantage in acquiring new businesses by using the group's vast network.

Shinhan Capital's moderate asset quality reflects the company's relatively concentrated loans and investments in Korea's real estate market that have remained stable over the past three years. While Moody's expects Korea's housing market and Shinhan Capital's asset quality to remain stable, a deterioration in the real estate market could increase the volatility of the company's asset quality and profitability.

Shinhan Capital's capital adequacy is moderate and will remain largely stable. Shinhan Financial Group continues to inject capital into the company, including additional equity capital of KRW150 billion in June 2021, which is equivalent to 12% of the company's tangible common equity as of the end of June 2021. Shinhan Financial Group also provided long-term funding to Shinhan Capital over the past three years, including KRW250 billion of perpetual bonds, which Moody's views as a stable source of funding. The Korean regulators also have tightened leverage requirements for capital companies, lowering maximum allowed leverage ratio to 8x by 2025, from 10x currently. We expect the company's regulatory leverage ratio to remain stable at current level of 7.1x as of the end of June 2021.

Moody's assumption of affiliate support for Shinhan Capital reflects (1) its 100% ownership by Shinhan Financial Group; (2) the interconnectedness within the group; (3) reputational risk; and (4) the track record of parental support. Shinhan Capital was the sixth largest subsidiary of Shinhan Financial Group in terms of assets as of the end of June 2021.

Moody's regards Shinhan Capital's close integration with Shinhan Financial Group in terms of risk management as a governance strength under the rating agency's environmental, social and governance (ESG) framework, given the implications for the company's financial strategy and risk management. Today's action reflects the impact on Shinhan Capital from the integrated intra-group governance, which results in the company's relatively stable asset quality for a capital company.

The financial group sets a cap on risk assets on an annual basis, which it monitors monthly. The company also shares risk management and cyber risk management systems with the group. These measures help ensure that the company's activities are in line with the group's strategy and risk appetite.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

FACTORS THAT COULD LEAD TO AN UPGRADE

Shinhan Capital's rating could be upgraded if Shinhan Bank or Shinhan Financial Group's ratings are upgraded.

Shinhan Capital's rating is unlikely to be upgraded from an upgrade of its standalone assessment because the company's standalone assessment post affiliate support is aligned with Shinhan Bank's BCA of a3. Nevertheless, Shinhan Capital's standalone assessment could be upgraded if the company strengthens its capital adequacy with its tangible common equity/tangible managed assets ratio above 13%. At the same time, the company maintains steady profitability above 2% and stable asset quality with problem loans/gross loans ratio below 1.0% on a sustained basis.

FACTORS THAT COULD LEAD TO AN DOWNGRADE

Shinhan Capital's rating could be downgraded if there are signs of a decline in Shinhan Capital's strategic importance to Shinhan Financial Group; or Shinhan Bank's credit profile weakens with a downgrade of its Baseline Credit Assessment (BCA).

Shinhan Capital's rating could also be downgraded if Shinhan Capital's standalone assessment is downgraded without signs of an increase in the group's support. Shinhan Capital's standalone assessment could be downgraded if the company's capital adequacy weakens with its tangible common equity/tangible managed assets ratio falling below 8%, asset quality weakens significantly with problem loans/gross loans and net charge-offs/average gross loans ratios rising above 3% on a sustained basis.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Shinhan Capital Co., Ltd. is a wholly owned subsidiary of Shinhan Financial Group Co., Ltd. and is headquartered in Seoul. Its consolidated assets totaled KRW10.2 trillion ($9.0 billion) as of the end of June 2021.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Tae Jong Ok
Vice President - Senior 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
Client Service: 852 3551 3077

Sophia Lee, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077

No Related Data.
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