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Announcement:

Moody's revises outlook for six Korean Government-related financial institutions to positive

 The document has been translated in other languages

02 Apr 2012

Hong Kong, April 02, 2012 -- Moody's Investors Service has revised the outlook for the foreign currency long-term senior unsecured debt ratings of six Korean Government-related financial institutions to positive from stable.

The six entities are: Export-Import Bank of Korea (KEXIM), Industrial Bank of Korea (IBK), Korea Finance Corporation (KoFC), Korea Housing Finance Corporation (KHFC), Korea Development Bank (KDB), and Korea Student Aid Foundation (KOSAF).

The rating actions follow Moody's revision of the outlook for Korea's sovereign ratings to positive from stable on 2 April 2012. Please see the related press release for more information on sovereign issues.

RATINGS RATIONALE

The outlook for the foreign currency long-term senior unsecured debt ratings of the six institutions was revised to positive as Moody's expects the government to support these entities in a timely manner, if needed, given their strong linkage with the government.

These entities are not only important policy arms of the government, but also benefit from certain forms of explicit government support. KEXIM, IBK, KoFC, and KHFC benefit from their individual charters, which hold the government legally responsible for replenishing deficits if their reserves are insufficient to cover their annual losses. Although the deficit replenishment clause is not as strong as a payment guarantee in terms of certainty for debt repayment, we take comfort from the fact that the government has already preemptively provided them with capital to maintain capital adequacy.

For KOSAF, the government continues to provide guarantees for most of its debt, which would significantly increase the government's incentive to support unguaranteed debt instruments due to the reputation risk to the government.

For KDB, the outlook on its A1 long-term foreign currency senior unsecured debt is revised to positive, as Article 18-2 (1) of the KDB Act requires the government to provide explicit guarantees for the debt within the limit set by the National Assembly at the point that the government sells any share in KDB Financial Group, parent of KDB. However, its deposits continue to have a negative outlook, reflecting the potential privatization of the bank, since deposits would not benefit from these explicit guarantees that would be triggered by a privatization.

REPOSITIONING OR ASSIGNMENT OF BASELINE CREDIT ASSESSMENT

Moody's has repositioned the stand-alone baseline credit assessment (BCA) of KEXIM to 11(Ba1) from 7(A3) as it better reflects its standalone credit profile. Moody's has also assigned an 11(Ba1) BCA to both KHFC and KoFC to enhance the overall transparency of their ratings as the two institutions had not previously been assigned BCAs.

The BCAs reflect the intrinsic financial strengths of the three institutions. These strengths include ordinary and ongoing support from the government, but do not incorporate any form of external extraordinary support which the institutions may receive. The BCA indicates Moody's opinion on the likelihood of these entities requiring extraordinary support.

In deciding BCAs for the three institutions, Moody's applied the overall analytical framework explained in the Finance Company Global Rating Methodology (March 2012) as a reference. In addition, Moody's considered other benefits that these institutions are currently enjoying. For example, these institutions enjoy very good access to the debt capital markets due to their reputation as government agencies. Nonetheless, as wholesale funded entities without a deposit franchise, their intrinsic liquidity is modest and this is a factor that negatively affects their BCAs.

Moody's repositioned KEXIM's BCA, as its previous BCA of A3 incorporated the likelihood of extraordinary support from the government. Therefore, the main drivers of its Ba1 BCA are modest levels of profitability which have been relatively stable through credit cycles, good asset quality, high credit concentration risk and a reliance on wholesale funding. Moreover, KEXIM's relatively weak earnings have meant that it has required frequent capital injections from the government to support its balance sheet growth. While Moody's views this positively from the perspective of government support, this periodic need for external capital injections is a factor that weighs negatively on the BCA.

The Ba1 BCA for KHFC also reflects modest levels of profitability, the good quality of its mortgage assets, the inherent challenges of hedging the embedded interest rate risk in its loan book and a reliance on wholesale funding.

KoFC's BCA reflects relatively high asset weighting in equities and its reliance on wholesale funding, offset by its relatively strong capital cushion.

Moody's does not assign a BCA for KOSAF, as most of its debt carries a government guarantee and its financials are so weak that it is hard to measure its standalone credit profile.

The resultant ratings and actions are listed below:

KEXIM -- The ratings whose outlook was revised to positive are: foreign currency long-term senior unsecured debt of A1; and foreign currency long-term senior unsecured MTNs/senior unsecured shelf of (P)A1/(P)A1. Its BCA was repositioned to Ba1 from A3. All other ratings were unaffected: foreign currency commercial paper of Prime-1.

IBK -- The ratings whose outlook was revised to positive are: foreign currency long-term senior unsecured debt/deposit of A1/A1, and foreign currency long-term senior unsecured/subordinated/junior subordinated MTNs of (P)A1/(P)A2/(P)A2. The D+ BFSR, mapping to a BCA of baa3, was unaffected and continues to carry a stable outlook. The rating on the foreign currency short-term deposit/commercial paper of Prime-1/Prime-1 was affirmed.

KDB -- The ratings whose outlook was revised to positive are: foreign currency long-term senior unsecured debt/senior unsecured MTN/ senior unsecured shelf of A1/(P)A1/(P)A1. The ratings whose outlook remains negative due to privatization risks are: local and foreign currency long-term deposits of A1. The D BFSR, mapping to a BCA of ba2, was unaffected and continues to carry a stable outlook. All other ratings were unaffected: foreign and local currency short-term deposits of Prime-1, and foreign currency commercial paper of Prime-1.

KoFC -- The ratings whose outlook was revised to positive are: foreign currency long-term issuer of A1, foreign currency long-term senior unsecured debt/senior unsecured MTN of A1/(P)A1. A BCA of Ba1 was assigned. All other ratings were unaffected: foreign currency short-term issuer/commercial paper of Prime-1/Prime-1.

KHFC -- The rating whose outlook was revised to positive is the foreign currency long-term issuer rating of A1. A BCA of Ba1 was assigned. The foreign currency short-term issuer rating of Prime-1 was unaffected.

KOSAF -- The rating whose outlook was revised to positive is the foreign currency long-term issuer rating of A1. The foreign currency short-term issuer rating of Prime-1 was unaffected.

PRINCIPAL METHODOLOGIES

The principal methodologies used in rating IBK and KDB were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. The principal methodology used in rating KEXIM, KoFC, KHFC, and KOSAF was Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

All 6 entities are headquartered in Seoul. Below are details of their assets as of 30 September 2011:

KEXIM: KRW54.1 trillion (USD45.9 billion); IBK: KRW150.9 trillion (USD127.9 billion); KDB: KRW153.1 trillion (USD130 billion) on consolidated basis; KOSAF: KRW6.6 trillion (USD5.6 billion); KoFC: KRW64.2 trillion (USD54.5 billion) on unconsolidated basis; and KHFC: KRW4.9 trillion (USD4.2 billion).

REGULATORY DISCLOSURES

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

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Young Il Choi
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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's revises outlook for six Korean Government-related financial institutions to positive
No Related Data.
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