May 17, 2017 / 7:50 AM / 3 months ago

Fitch Affirms KEB Hana Bank at 'A-'; Outlook Stable

(The following statement was released by the rating agency) SEOUL, May 17 (Fitch) Fitch Ratings has affirmed South Korea-based KEB Hana Bank's Long-Term Issuer Default Rating (IDR) at 'A-'. The Outlook is Stable. Fitch has also affirmed the bank's Viability Rating at 'a-'. A full list of rating action is at the end of this commentary. KEY RATING DRIVERS IDRS, VIABILITY RATING AND SENIOR DEBT KEB Hana's IDRs and senior debt ratings are underpinned by its Viability Rating, which reflects the bank's significant franchise in Korea, backed by a dominant market position in foreign-currency operations and strengthening capitalisation. The Viability Rating also takes into account the bank's moderate management quality, a risk appetite Fitch sees as more aggressive than higher-rated peers and sound asset quality. The Stable Outlook reflects Fitch's expectation that the bank's strong capital will cushion the bank from unexpected stress arising from its highly concentrated corporate exposure under the still-challenging operating environment over the near-to medium-term. That being said, Fitch expects the bank to strengthen its performance amid the low interest-rate environment. We estimate KEB Hana's profitability, measured by operating profit/risk-weighted assets, to be 1.3% in 2017; a significant improvement from the previous two years when it was affected by large merger and integration costs. Fitch expects KEB Hana's Fitch Core Capital ratio to improve further in the medium-term due to its parent's plan to boost the group's capitalisation. However, it may be dragged down by the capital floor issue that the bank has faced since 2016. The Fitch Core Capital ratio increased by 1pp to 13.8% in 2016 due to large cuts in high-risk weighted corporate exposures and the new internal-ratings-based system after the integration of its former banks. KEB Hana's loan mix has changed noticeably over the previous three years, as the bank has replaced a substantial portion of its large corporate exposures with low risk-weighted mortgages and real-estate rental loans. Fitch assesses that KEB Hana's single-borrower concentration has declined significantly, albeit it remains higher than that of local peers. Fitch expects KEB Hana's ratio of loans classified as precautionary and below (1.73% at end-2016) under the local regulator's loan-quality category - which Fitch believes is a better gauge of loan-quality development than non-performing loan ratios - to remain at about the average of local commercial banks (1.68%) for the next two years unless legacy asset problems emerge. Its reserves for impaired loans, at 66% at end-2016, is still weak compared with the 82% commercial bank average, but has improved significantly from 49% at end-2014. KEB Hana's adjusted customer loans/deposits ratio improved noticeably by 7pp to 109% in 2016, as abundant liquidity drove high customer deposit growth of 11%. Fitch expects the ratio to improve further given the bank's modest loan growth plan at around the nominal GDP rate. The nation's strengthened foreign-currency reserve position, at close to 100% of external liabilities, should serve as a large buffer to the banking sector's weak foreign-currency funding profile relative to international peers. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating and Support Rating Floor reflect Fitch's continued belief of an extremely high probability of support from the South Korean government (AA-/Stable), if required. This view is based on KEB Hana's systemic importance as one of South Korea's largest commercial banks, holding 13% of the banking system's total loans, 15% of deposits and about 40% of the nation's trade finance due to the bank's entrenched foreign-currency clearing system. SUBORDINATED DEBT KEB Hana's Basel III compliant Tier 2 debt is rated two notches below its IDR to reflect Fitch's poor recovery expectations due to the notes' subordinated status and because they are to be fully and permanently written-off upon hitting the point of non-viability. Fitch uses the support-driven IDR or Viability Rating, whichever is higher, as the anchor rating for Korea's systemically important banks' Tier 2 instruments, including KEB Hana's. This is because the Tier 2 instruments will be non-performing or will reach a point of non-viability when the issuing bank becomes insolvent or defaults. This is similar to the point at which senior debt is considered to be in default and Fitch expects pre-emptive support to be provided to avoid insolvency. KEB Hana's notes have minimal non-performance risk relative to its senior unsecured debt. For more details on Fitch's approach to rating Basel III-compliant Tier 2 notes, see <a href="https://www.fitchratings.com/site/pressrelease?id=883114 ">Fitch: Korean Basel III Terms Become More Creditor Friendly, dated 26 September 2014. RATING SENSITIVITIES IDRS, VIABILITY RATING AND SENIOR DEBT In the absence of any changes in support assumptions, any upside potential for the bank's IDRs and senior debt ratings is sensitive to the factors affecting the Viability Rating. Meanwhile, a downgrade of the IDR and senior debt is unlikely, even if the Viability Rating is downgraded, as they are currently rated at the bank's Support Rating Floor. The bank's Viability Rating is sensitive to Fitch's assessment of KEB Hana's company profile, risk appetite and financial profile. The ratings could be upgraded if there is a sustainable and significant improvement in the bank's financial strength and company profile. The ratings could be downgraded if there is a large increase in the bank's risk appetite, including rapid growth or weakened loan quality, leading to erosion of its capitalisation. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to any change in Fitch's assumptions about the propensity or ability of the Korean authorities to provide timely support to the bank. Furthermore, global regulatory initiatives aimed at lowering the implicit government support available to banks may cause downward rating pressure. Fitch expects the local regulator to propose a draft revision to its resolution framework to add a bail-in feature in 2H17. However, it remains to be seen how strong the language will be and how feasible it will be to enforce a bail-in in practice. The revision has already been postponed due to domestic political turmoil in Korea that has arisen since last fall and the consequent presidential election in May 2017. SUBORDINATED DEBT The ratings on the Basel III-compliant Tier 2 securities are sensitive to the same considerations that might affect KEB Hana's Long-Term IDR. A downgrade of the subordinated notes is considered to be unlikely unless the Support Rating Floor is downgraded, even if the Viability Rating is downgraded, as the IDR is rated at the Support Rating Floor. The rating actions are as follows: Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1' Viability Rating affirmed at 'a-' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A-' Long-Term senior unsecured debt affirmed at 'A-' Subordinated Basel III-compliant Tier 2 debt affirmed at 'BBB' Contact: Primary Analyst Heakyu Chang Senior Director +82 2 3278 8363 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeongdeungpo-Gu Seoul 07327, South Korea Secondary Analyst Matt Choi Associate Director +82 2 3278 8372 Committee Chairperson Parson Singha, CFA Senior Director +66 2108 0151 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below