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Fitch Upgrades Shinhan Card's Short-Term IDR to 'F1'
May 17, 2017 / 5:55 AM / 7 months ago

Fitch Upgrades Shinhan Card's Short-Term IDR to 'F1'

(The following statement was released by the rating agency) SEOUL, May 17 (Fitch) Fitch Ratings has upgraded South Korea-based Shinhan Card Co's (SHC) Short-Term Issuer Default Rating (IDR) to 'F1', from 'F2', and affirmed its Long-Term IDR at 'A-' and its Support Rating at '1'. The Outlook remains Stable. The upgrade of SHC's Short-Term IDR reflects Fitch's view that extraordinary support can be provided on a timely basis from its parent, Shinhan Financial Group Co., Ltd, and potentially from its sister bank, Shinhan Bank (A/Stable). Over the past several years, Shinhan Bank's funding and liquidity profile has improved - its balance sheet has grown along with its deposit base - increasing the size of its asset relative to that of SHC. KEY RATING DRIVERS SHC's IDRs and Support Rating reflect Fitch's view that there is an extremely high likelihood of support flowing from Shinhan group to SHC in times of need. As a bank holding company, Shinhan group itself does not have a strong ability to support SHC, with high 129% common-equity-double-leverage at end 1Q17. However, Fitch takes into account potential support from Shinhan Bank, Shinhan group's flagship subsidiary bank. We view that the local regulator is highly likely to favour Shinhan Bank providing support to SHC in the worst case scenario. Fitch considers SHC as a key subsidiary of Shinhan group, contributing significantly to expand Shinhan group's commercial banking franchise. Fitch believes that separation of SHC from Shinhan group would noticeably alter the group's overall shape, given its large 20%-30% contribution to the group's consolidated net profits and the strong synergies it generates with other group affiliates. In particular, SHC and Shinhan Bank cooperate in originating new customers and cross-selling of settlement bank accounts and new credit cards. The Stable Outlook reflects Fitch's expectation that Shinhan group, including Shinhan Bank, will perform consistently and is in line with the Outlook on Shinhan Bank. Fitch expects SHC to maintain its strong financial strength in the medium-term. We estimate SHC's underlying pre-tax income/average assets, excluding one-off gains, to be about 3%, significantly stronger than the local peer average of about 2% thanks to the cost advantage arising from its large franchise. Asset quality, with an over 30-days delinquency ratio of 1.7% at end-2016, should remain stable under the low interest-rate environment. Fitch expects SHC to maintain its strong capitalisation, with debt/tangible equity at around 2.5x. SHC's debt maturity is reasonably well spread out, with an average maturity of two years at end-2016. RATING SENSITIVITIES SHC's IDRs and Support Rating are sensitive to any change in assumptions around the propensity or ability of Shinhan group and Shinhan Bank to provide timely support. The agency may take rating action if the ratings of Shinhan Bank change or if SHC's relationship with Shinhan group and Shinhan Bank changes. The IDRs could be upgraded if there is more evidence that Korean regulators will adopt a consolidated approach to the oversight of all entities within the group or if there is a further significant improvement to Shinhan group's common-equity-double-leverage ratio or consolidated capitalisation. 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 +66 2108 0151 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) 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. 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