September 29, 2017 / 6:51 AM / 2 months ago

Fitch Affirms Citibank Korea at 'A-'; Outlook Stable

(The following statement was released by the rating agency) SEOUL, September 29 (Fitch) Fitch Ratings has affirmed Citibank Korea Inc's (CKI) Long-Term Issuer Default Rating (IDR) at 'A-'. The Outlook is Stable. Fitch has also affirmed the Viability Rating (VR) at 'bbb+'. A full list of rating actions is at the end of this Rating Action Commentary. KEY RATING DRIVERS IDRS AND SUPPORT RATING The bank's IDRs and Support Rating reflect Fitch's view of an extremely high likelihood that parent Citibank, N.A. (A+/Stable/a) would provide support, if necessary. This view is based on CKI's strategic importance to its ultimate parent Citigroup Inc.'s (A/Stable/a) extensive international banking operation; integrated risk management; and a high reputational risk to Citigroup should CKI be allowed to default - given the virtually full ownership by the parent and brand-name sharing. CKI's Long-Term IDR is one notch lower than the common VR of Citigroup and Citibank, based on Fitch's view that it will be less of a priority for Citigroup to support CKI than Citigroup's material legal entities (MLEs) in the event that the parent undergoes a resolution. CKI has a fairly independent franchise in its own right in South Korea, which is not a core consumer banking market to Citigroup. CKI, like most of Citigroup's international subsidiaries, was not specifically named as an MLE in Citigroup's resolution plan, last updated in July 2017. The Stable Outlook reflects the Stable Outlook on its ultimate parent Citigroup. (see "Fitch Affirms Citigroup's Long-Term IDR at 'A'; Outlook Stable", dated 28 September 2017 at www.fitchratings.com). VIABILITY RATING The 'bbb+' Viability Rating reflects strong capitalisation, and steady ordinary support from Citigroup - especially in risk management, cross-border financing, derivative operations and foreign-currency funding. It also reflects a diminishing local franchise, soft underlying profitability, and relatively high risk appetite that has led to weaker asset quality than at its higher-rated local peers. Fitch expects CKI to maintain strong capitalisation in the medium term - given its limited prospects for asset growth - even though a further significant improvement is likely to be held back by modest internal capital generation. CKI, in line with Citigroup, measures risk-weighted assets with the standardised approach, which is different from most of the local peers which use the internal-rating based approach. The Fitch Core Capital ratio at 18.0% at end-1H17 was significantly higher than the 13.7% local commercial bank average. CKI's loans-to-customer deposits ratio (after adjusting for loans and deposits to/from financial institutions) had improved to 114% by end-2016 from 138% at end-2014 as the bank cut back its loans by 11ppt during the period while customer deposits stabilised under the low-interest-rate environment. Its substantial liquid fixed-income portfolio (forming about 20% of total assets) provides a significant buffer to a reasonable challenge to its liquidity and funding. CKI's Basel III liquidity coverage ratio (124% at end-1H17) has been above the local peer average since the ratio's first disclosure in 1Q15. CKI's foreign-currency funding is heavily reliant on Citibank N.A. and its affiliates. The bank's strategic focus on profitability away from asset growth had already led to a smaller domestic franchise over the last decade. The ongoing large-scale branch shutdown is likely to put additional downward pressure to its loan and deposit franchise in the near term. It remains to be seen whether its attempt to transform the retail business into wealth-management and digital banking from the traditional branch-based operation could generate a sustainable return in the long term. CKI announced in July 2017 that it would close down 90 out of its 126 total branches by October 2017. Fitch forecasts CKI's underlying operating profits/risk-weighted assets to remain relatively weak at around 0.8% in the next two years. Its high general and administrative cost base is likely to continue to drag down the ratio relative to the local peers. The bank has become more reliant on income streams from derivatives and securities trading, which can be quite volatile depending on capital market situations, as its interest-income base has diminished notably following a significant downsizing of its loans. CKI's precautionary-and-below loans ratio (PBL ratio; 3.2% at end-1H17), as per the local regulator's loan categorisation, has remained worse than the local commercial bank average (1.5%). However, the ratio has improved noticeably over the past three years as the bank rapidly reduced poor-quality credit card receivables and expanded into unsecured personal loans, especially targeting salary workers with a stable regular income. Excluding credit card revolving assets, the PBL ratio was 1.6%, which is broadly in line with the local peer average. The loans to households and self-employed individuals, in aggregate, represented 72% of total loans at end-1H17, compared with its major local peers' average of about 62%. It remains unclear as to how Korea's weakening household debt-servicing ability will affect CKI, while Fitch does not see this factor as an imminent systemic issue - given Korea's quite strong job security, backed by strong labour laws and sound buffers in the banking system (eg mid-50% average loan-to-value). RATING SENSITIVITIES IDRS AND SUPPORT RATING The IDRs and Support Rating are sensitive to any change in Citigroup's ratings or CKI's relationship with its parent. The ratings could be affected by a change in Citigroup's resolution plan, which may prompt us to reassess the parent's ability or propensity to support. However, Fitch views this as unlikely in the near-term. VIABILITY RATING The Viability Rating is sensitive to a change in Fitch's assumptions regarding company profile, underlying profit structure and operating environment. Fitch may downgrade CKI's Viability Rating if CKI's shrinking franchise and high cost base undermine its business model significantly. The rating could also be downgraded if the challenging operating environment weakens the asset quality and/or capitalisation to a great extent, which is not Fitch's base-case scenario. Fitch does not expect to upgrade the Viability Rating in the near future because of CKI's shrinking franchise and low underlying profitability. The rating upgrade is also limited by CKI's large exposure to unsecured personal loans. The rating actions are as follows: CKI Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1' Viability Rating affirmed at 'bbb+' Support Rating affirmed at '1' Contact: Primary Analyst Matt Choi Associate Director +82 2 3278 8372 Fitch Australia Pty Ltd, Korea Branch 9F Kyobo Securities Building 97, Uisadang-daero, Yeongdeungpo-Gu Seoul 07327, South Korea Secondary Analyst Heakyu Chang Senior Director +82 2 3278 8363 Committee Chairperson Parson Singha, CFA Senior Director +662 108 0151 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; 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

Our Standards:The Thomson Reuters Trust Principles.
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