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Rating Action:

Moody's upgrades Woori Bank's ratings to A1; outlook stable

 The document has been translated in other languages

27 Apr 2018

Hong Kong, April 27, 2018 -- Moody's Investors Service has upgraded Woori Bank's long-term foreign currency deposit and senior unsecured ratings to A1 and changed the outlook on the ratings to stable. The bank's baseline credit assessment (BCA), adjusted BCA, and all other long-term ratings, including its long-term Counterparty Risk Assessment, were also upgraded by one notch.

Moody's has also affirmed the bank's short-term ratings and short-term Counterparty Risk Assessment.

At the same time, Moody's has upgraded the long-term foreign currency and local currency issuer ratings of Woori Card to A3, which incorporates a four-notch uplift from its standalone credit profile of ba1. In the meantime, Moody's has decided to withdraw the outlooks on Woori Card's instrument rating for its own business reasons. Woori Card's entity level outlook is stable.

Today's rating actions conclude the review for upgrade placed on Woori Bank on 8 December 2017 and Woori Card on 12 December 2017.

A list of all affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

FOR WOORI BANK

The upgrade of Woori Bank's long-term ratings takes into account the improvements the bank has achieved in its asset quality and capitalization. In view of Moody's expectation for a stable operating environment and benign asset quality for Korean banks this year, Moody's believes Woori Bank will maintain these improvements in its asset quality and capitalization.

"We assess that the improvements are structural and sustainable enough to warrant an upgrade of its BCA to baa2, which results in upgrade of its deposit and senior unsecured ratings to A1," says Sophia Lee, a Vice President and Senior Credit Officer at Moody's.

In terms of asset quality, Woori Bank has continued to lower its exposure to large corporates, particularly to those with a local credit rating below investment grade, and to sectors such as shipping, shipbuilding and construction that Moody's considers to be more cyclical and vulnerable to asset quality deterioration. As a result, its Moody's-calculated problem loans to gross loans ratio fell to 0.89% as of December 2017, from 3.02% as of December 2012.

In terms of capitalization, Woori Bank's tangible common equity (TCE) to risk weighted assets (RWA) ratio improved significantly to 12.5% as of December 2017 from 10.8% as of December 2015. The improvements were driven by efforts to reduce its RWA, which declined by 4.7% during the two year period, as well as stronger retained earnings growth.

Moody's maintains four notches of government support for Woori Bank, taking into account the government's 18.4% stake in Woori Bank via the Korea Deposit Insurance Corporation (KDIC). Although the government ultimately plans to fully dispose of its stake in Woori Bank, the timing for this is uncertain, since the government has not made any public announcements since KDIC sold 29.7% of its stake in December 2016. Moody's will review the level of government support once the government announces details around its plan to dispose of its stake. Moody's believes further stake sale will likely be timed with further improvement in the bank's financial profile when KDIC can maximize the repayment of government funds injected. In such a scenario, Moody's envisions that the narrowing of government support to 3 notches, consistent with other large banks, could be offset by higher BCA.

FOR WOORI CARD

Woori Card's issuer rating was upgraded to A3, reflecting the improved capacity of its parent Woori Bank to provide support, if needed, reflected in turn by the upgrade of Woori Bank's BCA to baa2 from baa3.

After the upgrade, Woori Card's issuer ratings incorporate a two-notch uplift for affiliate support, reflecting Moody's assumption of a very high likelihood of support. As a result, Woori Card's baa2 adjusted standalone credit profile is equalized with Woori Bank's baa2 adjusted BCA. Woori Card's ratings also incorporate a two-notch uplift reflecting the high likelihood of support from the Government of Korea (Aa2 stable), if necessary, that will likely flow through the bank.

Moody's assumption of affiliate support from Woori Bank considers the fact that Woori Card is a wholly owned subsidiary of Woori Bank, as well as its long-term strategic importance to Woori Bank, its interconnectedness within the group, the reputational risk that both entities share, and the past track record of support from Woori Bank.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Woori Bank's ratings could be upgraded if its financial fundamentals improve significantly, leading to upward pressure on its BCAs from (1) significant improvements in its capitalization while maintaining stable asset quality; (2) a significant decline in problem loan ratios and provision charges, while maintaining stable capitalization; and (3) a significant improvement in its funding and liquidity positions. However, a single notch upgrade in its BCA may not necessarily lead to upgrade of its long-term ratings if its improved fundamentals coincide with the sale by the government of its stake in the bank, which narrow the current government support uplift to three from four.

Woori Bank's ratings could be downgraded if its BCA comes under downward pressure, which could result from: (1) a significant increase in its problem loan ratio and provision charges without increases in core capital; (2) a significant weakening of its capitalization with TCE/RWA ratios decreasing by more than 200 basis points; and/or (3) a significant deterioration in its funding and liquidity positions. The ratings could also be downgraded if Moody's assessment of government support changes, triggered by a significant decrease in the government's shareholding in Woori Bank.

Woori Card's ratings could be upgraded if (1) Woori Bank's overall credit profile improves significantly resulting in a higher capacity to support Woori Card; or (2) Woori Card improves its standalone credit profile by improving asset quality, with its problem loan ratio falling below 1.6%, while maintaining its solid tangible common equity/tangible managed assets ratio above 16%, and profitability sustained at a recovered level.

Woori Card's ratings could also be downgraded if Woori Bank's capacity or willingness to support Woori Card changes materially, or if Woori Card's standalone credit profile deteriorates due to weakening asset quality, with its problem loan ratio rising above 4%, or if its capitalization weakens with its tangible common equity/tangible managed assets ratio falling below 16%.

The principal methodology used in rating Woori Bank, Woori Bank, London Branch, Woori Bank, Hong Kong Branch, Woori Bank, Los Angeles Branch was Banks published in April 2018. The principal methodology used in rating Woori Card Co., Ltd. was Finance Companies published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Woori Bank, headquartered in Seoul, South Korea, had total assets of KRW316 trillion (USD293 billion) at the end of December 2017. Woori Card Co., Ltd. is a wholly owned subsidiary of Woori Bank and is headquartered in Seoul. Its consolidated assets totaled KRW9 trillion ($8 billion) as of 31 December 2017.

LIST OF AFFECTED RATINGS

Woori Bank

- Foreign currency long-term deposit rating upgraded to A1 from A2, outlook changed to stable from review for upgrade

- Foreign currency short-term deposit rating of P-1 affirmed

- Foreign currency long-term deposit note/CD program rating upgraded to (P)A1 from (P)A2;

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Foreign currency commercial paper rating of P-1 affirmed

- Foreign currency other short-term rating of (P)P-1 affirmed

- Foreign currency senior unsecured rating upgraded to A1 from A2, outlook changed to stable from review for upgrade

- Foreign currency senior unsecured MTN rating upgraded to (P)A1 from (P)A2

- Foreign currency Basel III compliant subordinated debt rating upgraded to Baa3(hyb) from Ba1(hyb)

- Foreign currency Basel II subordinated debt rating upgraded to Baa1 from Baa2

- Foreign currency Basel III compliant subordinated MTN rating upgraded to (P)Baa3 from (P)Ba1

- Foreign currency preference stock non-cumulative rating upgraded to Ba2(hyb) from Ba3(hyb)

- Long-term counterparty risk assessment upgraded to Aa3(cr) from A1(cr)

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Baseline credit assessment and adjusted baseline credit assessment upgraded to baa2 from baa3

- Outlook is changed to stable from rating under review

Woori Bank, London Branch

- Foreign currency long-term deposit note/CD program rating upgraded to (P)A1 from (P)A2;

- Long-term counterparty risk assessment upgraded to Aa3(cr) from A1(cr)

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Foreign currency commercial paper rating of P-1 affirmed

- Outlook is changed to stable from rating under review

Woori Bank, Hong Kong Branch

- Foreign currency long-term deposit note/CD program rating upgraded to (P)A1 from (P)A2;

- Long-term counterparty risk assessment upgraded to Aa3(cr) from A1(cr)

- Foreign currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Outlook is changed to stable from rating under review

Woori Bank, Los Angeles Branch

- Local currency long-term deposit note/CD program rating upgraded to (P)A1 from (P)A2;

- Long-term counterparty risk assessment upgraded to Aa3(cr) from A1(cr)

- Local currency short-term deposit note/CD program rating of (P)P-1 affirmed;

- Short-term counterparty risk assessment of P-1(cr) affirmed

- Outlook is changed to stable from rating under review

Woori Card Co., Ltd.

- Foreign currency long-term issuer rating upgraded to A3 from Baa1

- Local currency long-term issuer rating upgraded to A3 from Baa1

- Outlook is changed to stable from rating under review

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.

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

The person who approved Woori Bank, Woori Bank, London Branch, Woori Bank, Hong Kong Branch, Woori Bank, Los Angeles Branch credit ratings is Minyan Liu, Associate Managing Director, Financial Institutions Group, Journalist: 852 3758 1350, Client Service:852 3551 3077. The person who approved Woori Card Co., Ltd. credit ratings is Yat Man Sally Yim, Associate Managing Director, Financial Institutions Group, Journalist: 852 3758 1350, Client Service: 852 3551 3077.

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.

Sophia Lee
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
Client Service: 852 3551 3077

Minyan Liu
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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