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Rating Action:

Moody's changes BFSR outlook for Busan and Daegu to stable from negative

28 May 2010

Hong Kong, May 28, 2010 -- Moody's Investors Service has changed the outlook on the "C-" bank financial strength ratings (BFSR) of Busan Bank and Daegu Bank to stable from negative. However, their "A2" deposit ratings are unaffected and continue to carry a stable outlook.

The revision of outlooks on the BFSRs of the banks reflects the improved economic prospects of the regions in which the banks operate as well as the banks' enhanced capital adequacy.

"Some credit losses in the industries with oversupply issues (such as construction, property project financing, shipping, and shipbuilding) are likely to continue for some time. However, we expect that the ongoing economic recoveries in the regions will result in improvements to profitability and a moderation of credit losses over the next 12 to 18 months", said Youngil Choi, a Moody's VP-Senior Analyst.

In addition, the improvements in the banks' capitalization will provide somewhat better protection against possible credit losses from the credit exposures to the industries with oversupply issues. Busan Bank's core Tier 1 capital ratio -- excluding hybrid tier one securities -- has improved to 9.7% at March 2010 from 7.4% at December 2008, while Daegu Bank improved the ratio to 8.8% from 8.0% during the same period.

We see a limited upside for BFSR at this time. However, positive pressure on the BFSRs could result if the banks significantly improve their franchises without compromising their financial conditions or demonstrate their ability to improve the asset quality and profitability even during periods of economic stress.

Downward pressure on the BFSRs could result from a noticeable deterioration in capitalization due to an acquisition of another regional bank, NPLs going above 5% of loans, or a significant decline in market share in the local banking markets due to severe competition from nationwide commercial banks.

The last rating actions on Busan Bank and Daegu Bank were taken on October 7, 2008 when the outlook on their C- BFSR was changed to negative from stable due to intensifying stresses from the global credit crisis and a weaker domestic Korean economy then.

The principal methodologies used in rating these issuers are the "Bank Financial Strength Ratings: Global Methodology"(February 2007), and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007).

These can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Busan Bank is based in Busan, Korea's second largest city. Established in 1967, it is the dominant bank in Busan city. As of March 2010, it had assets of KRW33.5 trillion (about USD 28 billion).

Daegu Bank, Ltd., is based in Daegu, Korea's third largest city. Established in 1967, it remains the dominant bank in Daegu city and Gyeongbuk province. As of March 2010, it had assets of KRW29.9 trillion (about USD 25 billion).

Hong Kong
YoungIl Choi
Vice President - Senior Analyst
Financial Institutions Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Singapore
Beatrice Woo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Moody's changes BFSR outlook for Busan and Daegu to stable from negative
No Related Data.
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