Hong Kong, December 21, 2015 -- Moody's Investors Service has upgraded the foreign currency long-term
ratings of six Korean government-related financial institutions
and Korea Securities Finance Corporation (KSFC) to Aa2 from Aa3.
The six entities are: The Export-Import Bank of Korea (KEXIM),
Industrial Bank of Korea (IBK), Korea Development Bank (KDB),
KDB Asia Ltd., Korea Housing Finance Corporation (KHFC),
and Korea Student Aid Foundation (KOSAF).
Moody's has also upgraded the long-term counterparty risk
assessment of IBK, KDB, KDB Asia and KSFC.
The outlook on all the ratings is stable.
The rating actions follow Moody's upgrade of Korea's sovereign ratings
to Aa2 from Aa3 on 18 December 2015. Please see the related press
release for more information on the sovereign upgrade at this link:
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_340669
A full list of the affected ratings can be found at the bottom of this
press release.
RATINGS RATIONALE
Moody's upgraded the foreign currency long-term ratings of the
seven institutions to Aa2 because of their strong linkages with the government
through—in some cases—direct ownership and—in all cases—their
important roles in supporting national economic policy. Many of
these entities also benefit from certain forms of explicit government
support. Consequently the ratings are closely linked to the sovereign
rating, and Moody's expects the government (Aa2 stable) to support
these entities in a timely manner, if needed.
Specifically, KEXIM, IBK, KDB 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 a deficit replenishment clause is not as strong as a payment
guarantee in terms of certainty for debt repayments, this uncertainty
is somewhat mitigated by the fact that the government regularly provides
capital to these institutions and preemptively maintains their capital
adequacy.
For KDB Asia, Moody's expects government support to flow through
KDB, which owns 100% of KDB Asia. Moody's assumption
of support is based on KDB Asia's strategic importance to KDB's business
in Asia.
For KOSAF, the government continues to provide guarantees for almost
all of its debt, which significantly increases the incentive to
support unguaranteed debt instruments due to the associated reputational
risk posted to the government should KOSAF default on its debt.
For KSFC, Moody's expects a very high likelihood of government
support given its key policy roles of providing liquidity to securities
companies, and managing customer accounts as the sole depository
institution to securities companies.
The resultant ratings and actions are listed below:
KEXIM (Lead Analyst: Sophia Lee)
• Foreign currency long-term senior unsecured debt rating/
foreign currency backed senior unsecured rating of Aa3 upgraded to Aa2
with a stable outlook
• Foreign currency long-term senior unsecured MTNs/senior
unsecured shelf/ backed senior unsecured shelf ratings of (P)Aa3/(P)Aa3/(P)Aa3
upgraded to (P)Aa2/(P)Aa2/(P)Aa2
• Foreign currency commercial paper rating of P-1 affirmed
• Foreign currency other short-term rating of (P)P-1
affirmed
IBK (Lead Analyst: Hyun Hee Park)
• Foreign currency long-term senior unsecured debt/deposit
ratings of Aa3/Aa3 upgraded to Aa2/Aa2 with a stable outlook
• Foreign currency long-term senior unsecured MTN rating of
(P)Aa3 upgraded to (P)Aa2
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
• Foreign currency short-term deposit/commercial paper/other
short-term ratings of P-1/P-1/(P)P-1 affirmed
• Short-term counterparty risk assessment of P-1(cr)
affirmed
• Baseline credit assessment and adjusted baseline credit assessment
of baa2 affirmed.
KDB (Lead Analyst: Hyun Hee Park)
• Foreign currency long-term senior unsecured debt rating
of Aa3 upgraded to Aa2 with a stable outlook
• Forgien currency senior unsecured MTN/senior unsecured shelf/ backed
senior unsecured shelf ratings of (P)Aa3/(P)Aa3/(P)Aa3 upgraded to (P)Aa2/(P)Aa2/(P)Aa2
• Backed senior unsecured debt rating of Aa3 upgraded to Aa2 with
a stable outlook
• Local and foreign currency long-term deposit rating of Aa3
upgraded to Aa2 with a stable outlook
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
• Foreign and local currency short-term deposit rating of
P-1 affirmed
• Foreign currency commercial paper rating of P-1 affirmed
• Foreign currency other short-term rating of (P)P-1
affirmed
• Short-term counterparty risk assessment of P-1(cr)
affirmed
• Baseline credit assessment and adjusted baseline credit assessment
of ba2 affirmed.
KDB, New York Branch
• Commercial paper program: Short-term rating of P-1
and short-term counterparty risk assessment of P-1(cr) affirmed
KDB, London Branch
• Foreign currency long-term senior unsecured debt rating
of Aa3 upgraded to Aa2 with a stable outlook
• Senior unsecured MTN rating of (P)Aa3 upgraded to (P)Aa2
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
• Short-term rating of its MTN program of (P)P-1 affirmed
• Short-term counterparty risk assessment of P-1(cr)
affirmed
KDB, Singapore Branch
• Foreign currency long-term senior unsecured debt rating
of Aa3 upgraded to Aa2 with a stable outlook
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
KDB Asia Ltd. (Lead Analyst: Hyun Hee Park)
• Foreign currency and local currency long-term deposit ratings
of Aa3/Aa3 upgraded to Aa2/Aa2 with a stable outlook
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
• Short-term deposit ratings of P-1 affirmed
• Short-term counterparty risk assessment of P-1(cr)
affirmed
KHFC (Lead Analyst: Sophia Lee)
• Foreign currency long-term issuer rating of Aa3 upgraded
to Aa2 with a stable outlook
• Foreign currency short-term issuer rating of P-1
affirmed
KSFC (Lead Analyst: Sophia Lee)
• Foreign currency long-term issuer rating of Aa3 upgraded
to Aa2 with a stable outlook
• Long-term counterparty risk assessment of Aa3(cr) upgraded
to Aa2(cr)
• Foreign currency short-term issuer rating of P-1
affirmed
• Short-term counterparty risk assessment of P-1(cr)
affirmed
KOSAF (Lead Analyst: Sophia Lee)
• Foreign currency long-term issuer rating of Aa3 upgraded
to Aa2 with a stable outlook
• Foreign currency short-term issuer rating of P-1
affirmed
WHAT COULD CHANGE THE RATINGS UP
KEXIM: An upgrade of the sovereign ratings could result in a ratings
upgrade for KEXIM.
IBK: An upgrade of the sovereign ratings could result in a ratings
upgrade for IBK
KDB: An upgrade of the sovereign ratings could result in a ratings
upgrade for KDB.
KDB Asia Ltd.: Upward rating pressure on KDB Asia could emerge
if KDB's ratings are upgraded.
KHFC: An upgrade of the sovereign ratings could result in a ratings
upgrade for KHFC.
KOSAF: An upgrade of the sovereign ratings could result in a ratings
upgrade for KOSAF
KSFC: An upgrade of the sovereign ratings could result in a ratings
upgrade for KSFC. Upward pressure on the BCA could develop from
its net income to tangible assets ratio rising above 1.8%,
from around 0.4% for the first six months of 2015.
WHAT COULD CHANGE THE RATINGS DOWN
KEXIM: KEXIM's ratings could be downgraded if: (1) the
sovereign ratings are downgraded; (2) there are changes to the KEXIM
Act that diminish the government's responsibility to maintain the bank's
solvency; or (3) if its BCA is lowered due to a significant deterioration
in its asset risk, without a corresponding increase in capital.
IBK: IBK's ratings could be downgraded if: (1) the sovereign
ratings are downgraded; (2) there are changes to the IBK Act that
diminish government's responsibility to maintain the bank's
solvency; or (3) if there is a large increase in the losses incurred
from its policy function, without a corresponding increase in capital.
KDB: KDB's ratings could be downgraded if: (1) the sovereign
ratings are downgraded; (2) there are changes to the KDB Act that
diminish the government's responsibility to maintain the bank's
solvency; or (3) if there is a large increase in the losses incurred
from its policy function, without a corresponding increase in capital.
KDB Asia Ltd.: KDB Asia's ratings could be downgraded
if: (1) KDB's ratings are downgraded; (2) KDB Asia's business
deteriorates, or its operations become less aligned with those of
KDB; (3) KDB Asia expands into operations that are unrelated to its
parent's business; or (4) KDB Asia receives less funding from the
parent as it becomes less strategically important to KDB.
KHFC: KHFC's rating could be downgraded if: (1) the
sovereign ratings are downgraded; (2) KHFC's BCA is lowered;
or (3) KHFC's debt burden rises significantly without a corresponding
increase in capital support from the government.
KOSAF: KOSAF's rating could be downgraded if: (1) the
sovereign ratings are downgraded; (2) there is a material change
in its role such that its importance to the government declines;
(3) there is a significant increase in its borrowings without government
guarantees; or (4) the National Assembly refuses to provide a government
guarantee on any new debt
KSFC: Downward pressure on KSFC's BCA could result in a downgrade
of its ratings. Its BCA could be lowered in case of: (1)
a significant change in its risk profile, resulting in greater risk
taking and higher volatility in earnings; (2) a diminished policy
role in the securities market; (3) its tangible common equity to
risk weighted assets ratio falling below 15%; (4) its problem
loans to gross loans ratio rising above 1.0%.
PRINCIPAL METHODOLOGIES
The principal methodology used in rating Korea Development Bank,
Korea Development Bank, London Branch, Korea Development Bank,
New York Branch, Korea Development Bank, Singapore Branch,
Industrial Bank of Korea, Korea Securities Finance Corporation,
and KDB Asia Ltd. was Banks published in March 2015. The
principal methodology used in rating The Export-Import Bank of
Korea, Korea Student Aid Foundation, and Korea Housing Finance
Corporation was Government-Related Issuers published in October
2014. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
All entities -- except KHFC and KOSAF -- are
headquartered in Seoul. KHFC is headquartered in Busan and KOSAF
is headquartered in Daegu. Below are details of their assets as
of 31 December 2014:
• The Export-Import Bank of Korea (KEXIM): KRW73.6
trillion (USD67.5 billion)
• Industrial Bank of Korea (IBK): KRW219.8 trillion
(USD201.4 billion)
• Korea Development Bank (KDB: KRW277.3 trillion (USD254.2
billion) on consolidated basis
• KDB Asia Ltd.: USD1.0 billion
• Korea Housing Finance Corporation (KHFC): KRW57.3
trillion (USD52.5 billion)
• Korea Securities Finance Corporation (KSFC): KRW36.2
trillion (USD33.2 billion)
• Korea Student Aid Foundation (KOSAF): KRW11.7 trillion
(USD10.8 billion)
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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 below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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
SUBSCRIBERS: (852) 3551-3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100
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 upgrades the ratings of six Korean government-related financial institutions and Korea Securities Finance Corporation
