Hong Kong, July 09, 2019 -- Moody's Investors Service has today affirmed Daegu Bank, Ltd.'s
A2 long-term foreign currency and local currency deposit ratings,
and foreign currency senior unsecured debt rating.
At the same time, Moody's has affirmed Daegu Bank's
Baseline Credit Assessment (BCA) of baa1.
Moody's has also changed the ratings outlook, where applicable,
to stable from negative.
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
The change in Daegu Bank's ratings outlook to stable from negative
reflects the bank's stable capital strength and benign asset quality.
Moody's expects that the bank will maintain its current level of
capitalization, driven by a normalization of its dividend payout
ratio and moderate asset growth over the next 12-18 months.
Daegu Bank's tangible common equity (TCE) over risk-weighted
assets (RWA) rebounded to 12.3% at 31 March 2019,
after falling to 12.0% at the end of 2018 from 12.2%
at the end of 2017.
Capitalization has remained stable, despite the increase in the
bank's dividend payout ratio to 47% in 2018; an historically
high level and higher than its Korean bank peers. DGB Financial
Group, the bank's parent, acquired Hi Investment and
Securities in 2017, which was partially funded by a dividend upstream
from the bank.
Daegu Bank's BCA of baa1 takes into account the bank's (1)
stable asset risk, driven by the stable operating environment in
its home region of Daegu and Kyungbuk province, and moderate loan
growth; (2) weak but stable capitalization compared with that of
other baa1-rated banks; (3) moderate and stable profitability;
and (4) stable funding and liquidity, supported by its regional
customers.
Its Adjusted BCA, which incorporates no affiliate support,
is at the same level as its BCA.
Korea does not have an operational bank resolution regime. Moody's
therefore applies a basic Loss Given Failure approach in rating Korean
banks.
The Preliminary Rating Assessment (PRA) on Daegu Bank's deposits
and senior unsecured ratings, representing Moody's view of the expected
loss in the absence of government support and before considerations of
debt ceilings, is at the same level as the Adjusted BCA.
Daegu Bank's long-term deposits and senior unsecured ratings
of A2 incorporate a two-notch uplift from the bank's PRA of baa1,
based on Moody's assessment of a very high probability of support
from the Government of Korea (Aa2 stable) if necessary. Moody's
view on government support takes into consideration the systemic importance
of Daegu Bank in Daegu and Kyungbuk province, Daegu Bank's
home market.
The very high likelihood of government support also takes into account
the Government of Korea's strong capacity to provide support, and
the government's track record of bailing out distressed banks.
Daegu Bank's counterparty risk ratings (CRR) are positioned at A1/P-1,
and the bank's counterparty risk assessment (CRA) is positioned at A1(cr)/P-1(cr).
For jurisdictions with a nonoperating resolution regime, the starting
point for the CRR and CRA are one notch above the bank's Adjusted BCA,
to which Moody's then adds the government support uplift.
The CRR and CRA benefit from two notches of government support.
WHAT COULD CHANGE THE RATINGS UP
Moody's would upgrade Daegu Bank's long-term deposit and
senior unsecured debt ratings, if the operating environment for
Korean banks improves, resulting in an upgrade of Korea's Macro
Profile.
Moody's would also upgrade the ratings if the bank's BCA is
upgraded.
The bank's BCA could in turn be upgraded, if Daegu Bank improves
its asset quality, while maintaining high profitability and capitalization,
with (1) annual net income/tangible assets in excess of 0.8%
on a sustained basis; (2) problem loans/total loans improving to
0.5% without substantial write-offs or the sale of
nonperforming loans; and (3) TCE over RWA improving to above 14.0%.
WHAT COULD CHANGE THE RATINGS DOWN
Moody's would downgrade Daegu Bank's long-term deposit and
senior unsecured debt ratings, if the bank's BCA is downgraded.
Moody's could downgrade Daegu Bank's BCA if (1) the operating environment
for Korean banks deteriorates, resulting in a downgrade of Korea's
Macro Profile; (2) the bank's TCE ratio falls below 12%;
(3) annual net income/tangible assets falls below 0.5% on
a sustained basis, because of a sharp increase in credit losses;
or (4) problem loans/gross loans increases above 1.6%.
The principal methodology used in this rating was Banks published in August
2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Daegu Bank, Ltd. is headquartered in Daegu, and had
total assets of KRW51.6 trillion (USD45.4 billion) at 31
March 2019.
LIST OF AFFECTED RATINGS
- Long-term local currency and foreign currency deposit
ratings affirmed at A2, with the outlook changed to stable from
negative
- Foreign currency senior unsecured rating affirmed at A2,
with the outlook changed to stable from negative
- Long-term local currency and foreign currency counterparty
risk ratings affirmed at A1
- Short-term local currency and foreign currency counterparty
risk ratings affirmed at P-1
- Short-term local currency and foreign currency deposits
ratings affirmed at P-1
- Baseline Credit Assessment (BCA) and adjusted BCA affirmed at
baa1
- Long-term counterparty risk assessment affirmed at A1(cr)
- Short-term counterparty risk assessment affirmed at P-1(cr)
- Outlook is changed to stable from negative
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.
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.
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
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
Minyan Liu, 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
