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Rating Action:

Moody's takes multiple rating actions on 10 Korean banks

09 Feb 2009

Singapore, February 09, 2009 -- Moody's Investors Service has taken multiple rating actions on 10 Korean financial institutions.

They are: Citibank Korea Inc, Export-Import Bank of Korea (KEXIM), Hana Bank, Industrial Bank of Korea (IBK), Kookmin Bank, Korea Development Bank (KDB), National Agricultural Cooperative Federation (NACF), Shinhan Bank, Woori Bank and Woori Finance Holdings.

These are entities whose foreign currency debt ratings are higher than that of the government and whose ratings were placed on review for possible downgrade on January 15, 2009.

Specifically, the following rating actions were taken:

(1) The foreign currency long-term senior debt ratings of eight banks were lowered to A2 -- Hana Bank, IBK, KEXIM, Kookmin Bank, KDB, NACF, Shinhan Bank and Woori Bank. The revised ratings carry a stable outlook, except for KDB which has a negative outlook;

(2) IBK's foreign currency subordinated debt rating was lowered to A2 from Aa3. The revised rating carries a stable outlook;

(3) NACF's foreign currency subordinated debt rating of A2 was confirmed with a stable outlook;

(4) The A2 foreign currency long-term deposit ratings of eight banks were affirmed -- Citibank Korea Inc, Hana Bank, IBK, Kookmin Bank, KDB, NACF, Shinhan Bank and Woori Bank. The ratings outlook is stable, except for KDB which has a negative outlook;

The above rating actions concluded the review initiated on January 15, 2009 to consider the appropriateness of the banks' foreign currency debt ratings vis-à-vis the Korean government's given the banks' heavy dependence on government support to secure external funding.

(5) The C bank financial strength ratings (BFSR) of the big four nationwide banks -- Kookmin Bank, Woori Bank, Shinhan Bank and Hana Bank --- were placed on review for possible downgrade;

(6) Kookmin Bank's foreign currency subordinated debt rating was lowered to A2 from A1 and remains on review for possible downgrade following the review of its BFSR; and

(7) In conjunction with the downward review of the big four banks' BFSRs, the following ratings remain on review for possible downgrade: global local currency (GLC) deposit for Kookmin Bank and Hana Bank; foreign currency subordinated debt for Woori Bank, Shinhan Bank and Hana Bank; foreign currency Hybrid Tier 1 for Woori Bank and Shinhan Bank; and the A2 foreign currency issuer rating for Woori Finance Holdings; and

(8) Finally, the GLC deposit for Citibank Korea and KDB remain on review for possible downgrade. Citibank Korea's review is due to the downward review of its BFSR following the rating actions on parent Citigroup and its related entities taken on January 16, 2009. KDB's review is due to the examination of its probability of systemic support assumption used in the Joint-Default Analysis application in view of the proposed privatization plan and other factors.

The complete list of ratings is at the end of the press release.

Beatrice Woo, a Moody's VP/Senior Credit Officer, provided details of Moody's rating actions below:

With regards to the foreign currency debt ratings, the downgrades reflect Moody's opinion that the banks' ratings should be more aligned with the Korean government's A2 foreign currency bond rating. This is on the basis that the government's ability to support systemically important banks in local currency liquidity is materially greater than its ability to provide foreign currency liquidity.

While the Korean banks continue to have some access to external funding -- since the collapse of Lehman Brothers -- without government guarantees, the foreign currency liquidity shortfalls of many banks are being met by utilizing various government channels, such as competitive swap auctions.

Accordingly, given the banks' reliance on government support to secure foreign currency funding during this crisis, Moody's believes it is inappropriate for their foreign currency debt ratings to be higher than that of the government. Therefore, their foreign currency debt ratings are best measured and constrained at the A2 foreign currency sovereign bond level.

In KEXIM's case, its rating derives from the application of Moody's rating methodology for government-related issuers (GRI). However, the bank's foreign currency senior debt rating was also affected by the change in Moody's opinion of the Korean government's ability to provide foreign currency liquidity support.

For KDB, its revised A2 foreign currency long-term senior debt and affirmed A2 foreign currency long-term deposit ratings carry negative outlooks due to its proposed albeit long-term privatization plan and other factors which may affect Moody's probability of systemic support assumption. These could reduce the key systemic support assumptions used in the Joint-Default Analysis application, and which have been incorporated into the bank's ratings.

The A2 foreign currency subordinated debt rating of IBK, Kookmin Bank and NACF is in line with Moody's practice of notching down bank junior obligations from the banks' respective GLC deposit rating subject to the A2 foreign currency government bond rating constraint.

The A2 foreign currency long-term deposit ratings for eight banks were affirmed due to Moody's continued view that Korea falls under the 'High' country support guideline. This guideline takes into consideration historic evidence of support for banks in Korea, in addition to the size, strength and the degree of fragmentation of the Korean banking system. Consequently, Moody's assesses systemic support to be very high.

Finally, the review of the big four banks' C BFSR will consider the anticipated deterioration in their creditworthiness due to intensifying stresses from the global credit crisis and weaker domestic economy. In this context, Moody's notes that the operating environment has steadily worsened in the past year, and such additional pressures are likely to push the banks' financial fundamentals into a lower rating range.

In particular, Moody's will assess in its review the asset quality of the banks against their provisioning and economic solvency levels, and finally, Moody's continues to monitor their liquidity positions.

The last rating action on Citibank Korea Inc was on January 20, 2009 when its BFSR of C- and baseline credit assessment (BCA) of Baa1 were placed on review for possible downgrade. The action followed the rating actions on parent Citigroup and its related entities taken on January 16, 2009.

The last rating action on the other nine banks was taken on January 15, 2009 following concerns expressed in Moody's press release of the same date and titled "Moody's comments on Korean banks foreign currency obligations." This commented on the banks' foreign currency obligations and their increased dependence on the Korean government for foreign currency support.

The principal methodologies used in rating these issuers are the "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology". These can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Citibank Korea Inc, headquartered in Seoul, had assets of KRW61.3 trillion as of September 2008.

Hana Bank, headquartered in Seoul, had assets of KRW149.4 trillion as of September 2008.

Industrial Bank of Korea, headquartered in Seoul, had assets of KRW134.7 trillion as of September 2008.

KEXIM, headquartered in Seoul, had assets of KRW30.6 trillion as of June 2008.

Kookmin Bank, headquartered in Seoul, had assets of KRW261.6 trillion as of September 2008.

Korea Development Bank, headquartered in Seoul, had assets of KRW150.0 trillion as of September 2008.

NACF, headquartered in Seoul, had assets of KRW190.3 trillion as of September 2008.

Shinhan Bank, headquartered in Seoul, had assets of KRW205.2 trillion as of September 2008.

Woori Bank, headquartered in Seoul, had assets of KRW225.1 trillion as of September 2008.

Woori Finance Holdings, headquartered in Seoul, had assets of KRW288.9 trillion as of September 2008.

The detailed ratings and actions are listed below:

Citibank Korea Inc -- Global local currency deposit of A1, BFSR of C- and BCA of Baa1 remain on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 were affirmed. Both ratings carry a stable outlook;

Hana Bank -- Foreign currency long-term senior debt was lowered to A2 from A1. The revised rating carries a stable outlook. Foreign currency subordinated debt of A2 and GLC deposit of A1 remain on review for possible downgrade. The BFSR of C was placed on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 were affirmed. Both ratings carry a stable outlook;

IBK -- Foreign currency long-term senior/subordinated debt were lowered to A2/A2 from Aa3/Aa3. The revised ratings carry a stable outlook. Foreign currency long-term/short-term deposit of A2/Prime-1 and the BFSR of D+ were affirmed. These ratings carry a stable outlook;

KEXIM -- Foreign currency long-term senior debt was lowered to A2 from Aa3. The revised rating carries a stable outlook. Foreign currency short-term debt of Prime-1 was affirmed and carries a stable outlook;

Kookmin Bank -- Foreign currency long-term senior/subordinated debt were lowered to A2/A2 from Aa3/A1. The revised senior debt rating carries a stable outlook, but the subordinated debt rating remains on review for possible downgrade. GLC deposit of Aa3 remains on review for possible downgrade. The BFSR of C was placed on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 were affirmed. Both ratings carry a stable outlook;

KDB -- Foreign currency long-term senior debt was lowered to A2 from Aa3. The revised rating carries a negative outlook. GLC deposit of Aa1 remains on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 and BFSR of D were affirmed. The foreign currency long-term deposit rating carries a negative outlook and the other ratings carry a stable outlook;

NACF -- Foreign currency long-term senior debt was lowered to A2 from A1. The revised rating carries a stable outlook. Foreign currency subordinated debt of A2 was confirmed with a stable outlook. Foreign currency long-term/short-term deposit of A2/Prime-1 and BFSR of D+ were affirmed. These ratings carry a stable outlook;

Shinhan Bank -- Foreign currency long-term senior debt was lowered to A2 from A1. The revised rating carries a stable outlook. Foreign currency subordinated and Hybrid Tier 1 debt of A2/A3 remain on review for possible downgrade. The BFSR of C was placed on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 were affirmed. Both ratings carry a stable outlook;

Woori Bank -- Foreign currency long-term senior debt was lowered to A2 from A1. The revised rating carries a stable outlook. Foreign currency subordinated and Hybrid Tier 1 debt of A2/A3 remain on review for possible downgrade. The BFSR of C was placed on review for possible downgrade. Foreign currency long-term/short-term deposit of A2/Prime-1 were affirmed. Both ratings carry a stable outlook; and

Woori Finance Holdings -- Issuer rating of A2 remains on review for possible downgrade.

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

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

Moody's takes multiple rating actions on 10 Korean banks
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